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Slow start to the week, central bank speak ahead

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By Craig Erlam  

It’s been a relatively slow start to the week, but things are likely to pick up with more appearances from prominent central bankers and key data due for release in the coming days.

Equity markets are a little higher early in the European session after what has been a tough couple of weeks. Stubborn inflation has investors concerned that there may be a much heavier economic price to pay for restoring price stability which appears to have shaken confidence a little.

Not only are more rate hikes being priced in, but the prospect of rate cuts this year has become more fantasy than reality.

Obviously, some are faring much worse than others, the UK being a prime example, but progress has also been much slower than hoped elsewhere. The likelihood is that getting from 4% to 2%, for example, may prove more challenging again.

We need to see some concrete signs of progress or sentiment could suffer much further.

Oil remains volatile

Oil is trading a little higher on Tuesday after rebounding off the lows in very choppy conditions in recent days.

While there will be various contributing factors behind these moves, the fact remains that oil is trading within the same range it has for almost two months. What we’re continuing to see is it fluctuate roughly between the upper and lower boundaries.

Brent has fallen short of the previous lows on four occasions in the last couple of months which may suggest we’re seeing some consolidation, but if we are, it’s extremely gradual and could last many more months.

Recent trading is merely a reflection of the immensely uncertain environment caused by extremely stubborn inflation pressures and the ever-changing expectations for interest rates.

Gold weighed down by stubborn inflation

Stubborn inflation is proving to be challenging for gold which has continued to pare its 2023 gains over the last couple of weeks.

There has clearly been a view until recently that inflation will start to fall considerably, which will enable central banks to stop hiking, maybe even consider easing, boosting gold’s prospects. But as yet, we’re seeing quite the opposite.

Traders still appear somewhat reluctant to accept that it won’t happen, which has helped bring some resilience to the yellow metal during declines. That belief hasn’t yet been rewarded, with gold now more than 7% off its highs and the recent break below $1,940 could be another sign of vulnerability.

Can bitcoin propel higher on ETF excitement?

We’ve seen some consolidation in bitcoin in recent days after it hit fresh highs for the year late last week.

There’s been no shortage of crypto newsflow, but the excitement around an ETF may well be what’s pulled traders back in. Either way, it promises to be an intriguing and potentially volatile second half of the year as we await the outcome of that and the action brought against various exchanges from the SEC.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.