Tightening continues amid higher inflation

Another mixed session on Wednesday, with Europe edging lower once more and US posting small gains early in the day.

There is so much focus on the inflation outlook right now and what policymakers are doing to get to grips with it. Two central banks have raised interest rates by 50 basis points today and the Fed is expected to follow that with a similar move in a couple of weeks’ time.

The moves from the RBNZ and BoC were not surprising, although the consensus for the former was 25 basis points prior to the meeting with the potential for an upside surprise. But they do support the view that more needs to be done now from central banks to avert the need for more later, with most viewed to already be late to the party.

US data on Tuesday allayed some inflation fears in the markets, with CPI being almost in line with expectations while the core reading was actually a little lower. It was still far too high but ended a period of above consensus readings which may be a sign of inflation peaking.

The same cannot be said in the UK, where inflation was once more well above expectations at 7%. The core number was a little lower at 5.7% but as with the headline that was well above the consensus forecast. And with the energy price cap only rising in April – by 54% – the peak is yet to come, with forecasts putting that around 8.5% this month.

While the BoE was among the first to start its tightening cycle, raising at three consecutive meetings since December, there’s no less pressure on them to continue their tightening cycle with rates seen rising much further over the course of the year. The apparent cooling in the hawkish language after the last meeting may be short-lived if recent economic reports are anything to go by.

Bitcoin seeing some reprieve after a rough week

Bitcoin is enjoying a bit of a recovery alongside other risk assets today. It’s suffered so far this week and spent a bit of time below USD 40,000 as a result which could have been the catalyst for further pain. But it’s showing a little resilience today, up around 3%, and now the test becomes USD 42,000 which has previously been a level of interest.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam