By Craig Erlam
Recent UK economic data has been a mixed bag, with wages rising at a much-accelerated rate, but inflation decelerating as expected.
While the Bank of England will be relieved at the latter, the former will remain a concern, as wage growth even near those levels is not consistent with inflation returning sustainably to target over the medium term.
The ONS released new figures overnight that appeared to suggest core inflation is not rising as fast as the CPI data suggests. The reportedly more sophisticated methodology concluded that core prices rose 6.8% last month, down from 7% the previous month and 7.3% the month before.
The official reading for July was slightly higher at 6.9%, but down from only 7.1% in May.
So, not only is the new methodology showing core inflation lower last month, but the pace of decline is much faster. That will give the BoE hope that price pressures are easing and they’re expected to do so much more over the rest of the year.
The pound has continued to trend higher against the dollar over the last week, having corrected considerably since the middle of last month.
This may just be a consolidation period as part of a broader correction, with 1.28 continuing to provide significant resistance. A move below 1.26 would suggest this is the case.
Oil eases further as China hopes fade
Oil prices ended slightly lower again on Tuesday having fluctuated a lot so far this month, only to trade slightly below where it started. Don’t read too much into this month’s price action, despite the narrative as traders are not convinced much has fundamentally changed.
There’s always been a risk of US rates remaining higher for longer, while China’s recovery has been sluggish for months, as has their response to it.
We need to see a significant change in the trend of the data to seriously change the outlook for crude and we haven’t seen that. It may come over the next month or so but for now, we just appear to have seen crude move into a higher range of $80-90.
Choppy period for gold
It’s been a choppy day for gold, with the price fluctuating around $1,900 after breaking below last week for the first time since June. It’s also the first time the yellow metal has spent any decent time below here since March.
The prospect of higher yields for longer is clearly taking a toll, particularly in this quieter period amid such uncertainty.
It does appear to have run into some support over the last week, though, perhaps with traders now having an eye on Jackson Hole and whether Jerome Powell will deliver another big Fed moment.
In all likelihood, the data over the coming weeks and the September meeting will probably be the big moments for the yellow metal.
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.