Pound Sterling is holding onto small gains early on Wednesday as investors analyze May inflation data ahead of the Bank of England’s (BoE) monetary policy announcements on Thursday. The UK’s Office for National Statistics (ONS) reported that inflation, measured by the Consumer Price Index (CPI), declined to 2% on a yearly basis in May from 2.3% in April. Despite the softer inflation readings, GBP/USD edged higher and was last seen trading near 1.2720.
The US Dollar struggled to gain strength on Tuesday following mixed macroeconomic data releases and comments from Federal Reserve (Fed) officials. Retail Sales in the US rose less than expected in May, but Industrial Production grew at a faster pace than forecast. The USD Index registered small losses on the day but held comfortably above 105.00. Meanwhile, EUR/USD climbed to a daily high above 1.0760 but failed to gather bullish momentum and trades below 1.0750.
Gold registered small gains on Tuesday as the benchmark 10-year US Treasury bond yield failed to build on Monday’s rebound. XAU/USD remains in a consolidation phase at around $2,330 in the early European session. In terms of currency performance, the British Pound was the strongest against the New Zealand Dollar. The heat map shows percentage changes of major currencies against each other, with GBP/USD edging higher and the USD Index fluctuating around 105.30 early on Wednesday.
Inflation measures the rise in the price of a representative basket of goods and services, usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel and is the figure targeted by central banks to keep inflation at a manageable level. High inflation in a country can push up the value of its currency as central banks raise interest rates to combat it, attracting global capital inflows. Formerly, Gold was the asset investors turned to in times of high inflation, but now higher inflation leads to higher interest rates which are negative for Gold.
Overall, the currency markets are responding to the latest inflation data and monetary policy announcements, with Pound Sterling holding onto small gains, the US Dollar struggling for strength, and Gold registering small gains. Investors are keeping a close eye on inflation figures and central bank policies, as well as other macroeconomic data releases and geopolitical developments that could impact currency movements. The currency markets are expected to remain active as investors continue to assess the impact of various economic factors on exchange rates.
