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What’s happening: Crude oil settled higher on Wednesday, following the release of US inflation data.
What happened: Oil prices jumped 2% and reached a five-month high on Wednesday, adding to the gains recorded in the previous trading session.
Cooler-than-expected US inflation data and weakness in the US dollar lent support to oil prices.
Why it matters: The US Labor Department released inflation data on Wednesday, which fuelled speculations of the Federal Reserve moving closer to ending its rate hike cycle.
The annual inflation rate in the US eased for a ninth straight period to 5% in March, from 6% in the previous month. The figure was the lowest since May 2021 and came in better than market expectations of 5.2%.
The consumer price index (CPI) rose 0.1% in March, decelerating from February’s 0.4%. This was also better than market estimates of 0.2%.
The US dollar moved sharply lower following the release of inflation data. Any weakness in the greenback lends support to oil prices, as this makes US dollar-priced commodities cheaper for foreign currency holders.
Traders shrugged off news of an increase in US crude stockpiles last week. The EIA (Energy Information Administration) said crude inventories had grown by 597,000 barrels to 470.5 million, versus market estimates of a decline of 600,000 barrels.
Gasoline inventories fell by 0.331 million, much lower than market expectations of a 1.6 million drawdown. Distillate stockpiles also contracted by 0.606 million barrels, versus estimates of a 0.764 million decline.
A recent report from the API (American Petroleum Institute) also showed crude inventories growing by around 380,000 barrels last week.
Markets remained upbeat, expecting an increase in oil demand from China, despite the International Monetary Fund’s lowered outlook for global economic growth.
Brent crude gained $1.72, or 2.01%, to settle at $87.33 per barrel on Wednesday. This was the highest level since late January. WTI crude surged $1.73, or 2.1%, to close at $83.26 per barrel, recording its highest level in five months.
In other energy trading, wholesale gasoline for May delivery came in unchanged at $2.87 a gallon, while May heating oil added 3 cents to $2.70 a gallon and May natural gas declined 10 cents to $2.09 per 1,000 cubic feet on Wednesday.
What to watch: Traders will keep an eye on monthly reports from the OPEC (Organization of the Petroleum Exporting Countries) and the IEA (International Energy Agency), scheduled for release on Thursday and Friday, respectively.
Context: The GBP/USD forex pair moved higher on Wednesday following the release of US inflation data.
Details: Traders welcomed softer-than-expected US CPI (consumer price index), which increased hopes of the Federal Reserve ending its monetary policy tightening. Weakness in the US dollar lent support to the GBP/USD forex pair on Wednesday.
Markets expect the Bank of England to raise its benchmark interest rates further in a bid to cool rising inflation. Data released recently showed UK inflation unexpectedly accelerating to 10.4% in February, with food inflation climbing to a record high.
The sterling moved higher despite the International Monetary Fund saying that UK’s GDP is expected to contract by 0.3% in 2023, representing the worst performance among the G7 nations.
The GBP/USD forex pair settled higher at 1.2485 on Wednesday, close to the 10-month high of 1.2525 recorded last week.
Equities in London surged for the fourth session in a row, with the FTSE 100 gaining 0.5% to close at 7,824.84 and the domestically oriented FTSE 250 rising 0.25% to settle at 19,002.73 on Wednesday.
What are expectations: Traders await economic reports on GDP, industrial production and balance of trade from the UK today. The British economy, which grew 0.3% month-over-month in January, is expected to expand by 0.1% in February. Analysts expect industrial production rising 0.2% month-over-month in February, following a 0.3% decline in January. The UK trade deficit, which shrank to £5.86 billion in January, is projected to narrow further to £4.9 billion in February.
Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.11%, 0.41% and 0.89%, respectively.
The US imposed sanctions on more than 120 people and entities around the world supporting Russia’s invasion of Ukraine. The safe-haven US dollar index fell slightly this morning.
Australia’s unemployment rate came in at 3.5% in March, unchanged from the previous month. However, the figure was better than market expectations of 3.6% and lent support to the AUD/USD forex pair.
The US government budget deficit widened to $378 billion in March, from $193 billion in the year-ago period, which sent the Nasdaq 100 index lower on Wednesday.
UK’s RICS Residential Market Survey house price balance declined to -43 in March, but came in higher than February’s reading of -48, lending support to the GBP/USD forex pair.
The Bank of Canada kept the target for its overnight rate unchanged at 4.5% at its latest meeting, which sent the CAD/USD pair higher in forex trading this morning.
Germany’s consumer price inflation and current account, UK’s manufacturing production and goods trade balance, Italy’s industrial production, Eurozone’s Industrial production, South Africa’s mining production and gold production, Turkey’s gross foreign exchange reserves, Saudi Arabia’s wholesale prices change, consumer price index and balance of trade, US producer price inflation, initial jobless claims and continuing jobless claims, Bank of Mexico’s monetary policy meeting minutes, Indonesia’s total car sales, as well as Turkey’s total motor vehicles production.
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