In early European trading on Wednesday, the pound witnessed a minor uptick against the dollar, reaching 1.2692, an increase of 0.1%. This occurrence followed the release of the latest UK inflation data, which came in hotter than anticipated, surging to 2.3% in October. This latest consumer price index (CPI) reading followed a three-year low of 1.7% in September and exceeded the Bank of England’s 2% target. Although economists had predicted a rise, cautioning that it was likely driven by higher energy costs after the energy price cap was raised for households in October, this inflation increase was still higher than expected. Inflation data holds significant importance for the Bank of England (BoE) as it utilizes this information to guide its decisions on interest rates. Consequently, this latest reading has tempered market expectations of the central bank cutting rates once again in December. BoE governor Andrew Bailey warned this week that the central bank would be compelled to cut interest rates at a “gradual” pace while evaluating the impact of the chancellor’s decision to raise taxes on employers.Impact on Market Bets
Danni Hewson, head of financial analysis at AJ Bell, stated that although this 2.3% increase was only slightly above the BoE’s target, it disrupted a three-month downward trend. Market expectations of a further interest rate cut in December have now decreased to only 16%, with nearly half believing that even February may be too early for the MPC [monetary policy committee] to cut again. The fact that core inflation edged up slightly, with the service sector being the most closely watched part of the equation, will cause the nine members of the committee to pause and consider their next steps.Pound's Performance Against the Euro
The pound also showed strength against the euro (GBPEUR=X), rising by 0.3% to €1.1999. This indicates that the pound is performing relatively well in the currency market and is attracting attention from investors.Gold Prices and Geopolitical Concerns
Gold prices experienced a slight dip on Wednesday morning after a rebound in the previous session due to geopolitical concerns. Spot gold fell by 0.3% to $2,625 per ounce, while US gold futures were down by 0.1% to $2,627 per ounce at the time of writing. Concerns over the escalation of the Russia-Ukraine conflict weighed on markets in the previous session, particularly following the US decision to permit Ukraine to carry out long-range missile strikes on Russian targets. In a note on Wednesday, Deutsche Bank strategists stated that the escalation news immediately led to a significant move into perceived safe havens, with assets like gold, sovereign bonds, and the Japanese yen all advancing.Investment Bank Forecasts for Gold
Meanwhile, investment banks shared their forecasts that the gold rally is set to continue over the next year. UBS Group (UBSG.SW) predicted that the gold price would reach $2,900 per ounce by the end of next year, according to Bloomberg. Goldman Sachs (GS) forecasted that the precious metal could rise to $3,000 by the end of 2025. These forecasts suggest that investors are optimistic about the future performance of gold.Oil Prices and Geopolitical Drivers
Oil prices surged on Wednesday morning, driven by geopolitical concerns. Brent crude futures rose by 0.7% to $73.83 a barrel, while US West Texas Intermediate (WTI) (CL=F) jumped 1% to $70.15. Derren Nathan, head of equity research at Hargreaves Lansdown, stated that the ratcheting conflict between Russia and Ukraine is the key driver currently overshadowing a sharp rise in US inventories and the resumption of production at Norway’s Johan Sverdrup oil field, the largest in Europe. The production stoppage at Johan Sverdrup, Western Europe’s largest oilfield, triggered by a power outage, along with reduced output from the Tengiz field in Kazakhstan, further supported oil prices.FTSE 100's Performance
Looking at market movements more broadly, the FTSE 100 (^FTSE) rose on Wednesday morning despite the rise in UK inflation. This shows that the stock market is not overly affected by short-term inflationary pressures and is continuing to move forward. For more details, check our live coverage here. Download the Yahoo Finance app, available for Apple and Android.
