After dramatic rises last week, precious metals have settled lower this week, and remain mostly unmoved by the latest economic drivers of the past two days. Gold is still waiting for the spark needed to push it to new all-time highs above $2,100 per ounce.
Wednesday saw the latest US inflation figures come in slightly below expectations at 4.9% year on year. Despite April’s figure representing the tenth monthly decline, it is only slightly down on March’s 5% and suggests inflation is remaining stubbornly high.
The figure has left markets with mixed opinions. At more than two times the Federal Reserve’s target of 2%, and the decline looking more like a plateau, the Fed could push ahead with further interest rate hikes when they next meet in June. With inflation falling however, and interest rates already standing at 5.25% the Fed may prefer to pause and see if inflation continues to fall without putting more pressure on borrowing costs. Matching market sentiment, the Dollar Index also remained flat on the unclear direction the Fed will take.
Here in the UK, the Bank of England raised rates by 0.25% points as expected, taking UK rates to 4.5%. This is the highest rates have been in the UK since 2008. As with the last meeting, the votes were split 7 – 2, with two members voting to keep interest rates as they are. With inflation at 10.1% however, the majority clearly felt more needed to be done to bring inflation down quicker.
Inflation is expected to just about halve by the end of the year, but that would still leave inflation at 5%, far above the BoE’s 2% target, and higher than inflation currently stands in the US. The Bank doesn’t expect inflation to return to 2% now until early 2025 in what will be a blow to those already struggling with the cost-of-living crisis.
After a gloomy forecast just a few months ago, the UK economy is now expected to stagnate rather than fall into recession. The less than stellar growth estimates have failed to move the pound either. Having had a strong few weeks which saw it jump from $1.24 to $1.26, Sterling is trading slightly lower today at $1.257.
Markets are now focused on today’s latest Producer Price Index in the US, potentially giving some indication on whether manufacturers are still raising prices. The debt ceiling showdown also looms following a lack of progress in a meeting this week between Biden and McCarthy. With the US Treasury warning that a default could happen June 1st without a compromise, it leaves just two weeks for an agreement to be reached between two politically divided groups.
