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UK Inflation Data In Focus


17 November 2021 Written by Naeem Aslam  AvaTrade Chief Market Analyst Naeem Aslam

European futures are trading higher as traders continue to focus on the earnings and economic data. In the UK, it is all about the inflation data, the number came out strong as expected. Traders have one question in mind and that is what the Bank of England will do next in the face of this data. One thing is clear and that is that the bank can’t leave the monetary policy as it is.

Cryptos

Cryptos are still struggling, and the entire space is still under selling pressure as Bitcoin continues to move lower along with Ethereum. From a seasonality factor, Bitcoin and other cryptos usually rally during this time of the year and traders are still holding on to their hopes that they will rally in this space. However, so far, the month of November has not been great for Bitcoin as the price is in negative territory.

UK Inflation Data and Forex

Inflation is the main focus in the UK. Sterling has been the best performing currency and it traded higher against the other major currencies yesterday. The interesting element about the UK’s economy is that it continues to defy most of the odds that are stacked against it. For instance, the employment data confirmed yesterday that the country is experiencing strong employment. The fear among investors and traders was that once the furlough scheme is out of the door, we are likely to see a completely different picture for the UK’s job market i.e. higher unemployment rate. However, data confirmed yesterday that that the economy added 247K jobs in August, up from 235K. In addition to this, the unemployment rate also fell to 4.3%, which is the lowest reading in more than year.

Currency traders know that the Bank of England is itching to increase the interest rate and a hot reading on the inflation front only adds more convictions to their current stance on monetary policy. In other words, after a strong UK CPI reading, the odds are quite high that we will see an interest rate hike next month by the BOE.

Gold

As for the gold prices, clearly prices have been struggling for the past number of days and that is purely due to the strength in the dollar index. The dollar index is sitting at its best level in nearly 16 months and this particular strength in the dollar has been due to stronger than expected economic numbers. Yesterday, we had another decent reading for the US retail sales data which confirmed that consumers aren’t shaken by higher inflation, and they are still spending.

Today, the focus is going to be on the Fed speeches as a number of members will be speaking today. What we want to hear from them is a coherent message in terms of the monetary policy. So far, the Fed Chairman has said that there is no rush to increase the interest rate and market players aren’t expecting any interest rate until Q3 of next year.

Oil

Soaring oil prices are keeping pressure on the Biden administration to give the market what it needs and that is a release of oil from emergency reserves so that soaring oil prices can be controlled. The OPEC cartel is no mood in controlling the supply, however. They believe that it is likely that in the coming months there may be extra supply on the market with the current production levels. The fact of the matter is that if we need to see oil prices at a more reasonable level, we must see the cartel increasing the oil supply. Any release of oil from the US Strategic Petroleum Reserve may only cool the prices for a brief period.

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