In May, the country experienced the biggest increase in consumer prices in 13 years. The consumer price index (CPI) hit a headline 2.4 percent increase, year over year. Last week the US Bureau of Labor Statistics released preliminary new data. The report showed the core CPI, which strips out the more volatile food and energy indexes, up 2.8 percent over a year earlier. Even so, these gains were still not enough to meet economists’ expectations, causing alarm among financial analysts.
As reaction to the newly released data, GBP/USD currency pair tested the 1.3540 level. This move followed a wave of US inflation readings that caused the pair to hasten its climb to greener pastures. The response in the currency space is a good barometer of overall investor angst over the economic picture.
Unexplained turns in the relationship between the US and China have put more wrinkles in the market. On the latter count, the two countries recently wrapped up trade negotiations, reaching an agreement largely centered on rare earth minerals. The small wording change has led to an overly cautious approach by traders. They are understandably concerned about the possible ramifications of the deal given today’s geopolitical unrest.
Gold prices reacted strongly by climbing back to $3,350 per troy ounce the day after the CPI data came out. The dubious increase is likely buoyed by the recent spike in inflation figures. Continuing geopolitical concerns are pushing traders into gold, bolstering its safe-haven asset qualities.
Literally every investor in the world is trying to dig deep into Chancellor Reeves’ extraordinary multi-year spendakigious. They too have been keyed for the initial UK economic data due Thursday. The build-up to this data has the potential to cause major currency moves still, especially in terms of the reaction from GBP/USD.
Across the pond in the Eurozone, the EUR/USD pair skyrocketed on easing tensions. It hit as high as 1.1470 soon after the release of US CPI this morning. This increase is a reflection of improved sentiment towards the euro, particularly given the growing uncertainties about US economic performance.
Even with the unprecedented increase in consumer prices during May, the release has initiated a robust debate over the appropriate future course of monetary policy. Analysts note that the shelter adjusted-core CPI came in considerably below consensus expectations. This points to the idea that inflationary pressures are not as aggressive as once thought.
“US headline CPI came in at 2.4% YoY in May.” – Source