Sterling received a solid boost on Tuesday after February’s accelerating inflation figure of 2.3% sparked speculations of the Bank of England raising UK interest rates in the medium to longer term. The persistent currency weakness created from Brexit has effectively propelled inflation above the Bank of England’s golden target for the first time in more than three years with even the critical core CPI hitting 2%. While the immediate market reaction to this blockbuster inflation figure was bullish, gains may be limited as investors start to reevaluate the ramifications it may have to the UK economy. With the 2.3% inflation level superseding average earnings which currently stand at 2.2%, consumer spending may be negatively impacted and such could trigger fears over the sustainability of the UK’s consumer fueled economic growth. Although expectations may mount over the BoE raising UK interest rates amid the spiraling inflation, the uncertainty around Brexit and concerns over the health of the economy could prompt the Central Bank to remain on standby.
While the repeated gains seen on Sterling have been impressive, a chunk of the upside momentum may be attributed to Dollar weakness. The bullish combination of Dollar vulnerability and slight optimism over the BoE hawks coming back into town continues to entice bulls to install rounds of buying. This technical bounce could come to an abrupt end when the focus is redirected back towards the Brexit developments. The first crucial test for Sterling may be when Article 50 is invoked on the 29th of March. Technical traders may observe how the GBPUSD reacts below 1.2500 with any noticeable weakness encouraging bears to jump back in.
EURUSD punches above 1.0800
The Euro bulls were unleashed on Tuesday with the EURUSD punching above 1.0800 as political concerns in Europe eased after independent candidate Emmanuel Macron performed quite impressively in France’s first presidential debate. With fears somewhat receding over the political uncertainty in France coupled with the ECB slowly adopting a hawkish stance, the Euro has found itself back in fashion. A vulnerable Dollar has played a part in the EURUSD resurgence with further Dollar weakness potentially paving a path higher. From a technical standpoint, much focus may be directed to how prices react to the 1.0800 resistance level. A daily close above 1.0800 could encourage bullish investors to attack the next relevant level at 1.08500. On the other hand, if 1.0800 remains defensive then 1.0700 could be a possibility for the bears.
Commodity spotlight – Gold
A vulnerable Dollar has supported Gold on Tuesday with the metal trading around $1232 as of writing. With the lingering impacts of last week’s "dovish hike" still reverberating across the board, bulls may exploit this period of ongoing Dollar weakness to propel Gold prices towards $1240. While additional gains may be realized in the short term, the upside could be limited in the longer term when the Dollar regains its attitude. From a technical standpoint, although prices are turning bullish on the daily charts, exhaustion below $1240 could still encourage bears to send prices lower.
