“Inflation is transitory”. This is a sentence that has been repeated, for months, by many central bankers.
Macroeconomic data has proven that this was not correct, or at least that we are talking about a very extensive transitory phase of inflation.
Yesterday, inflation in the EU hit a new, historic record. May’s reading recorded a new high at 8.1%, well above analysts’ forecasts (placed between 7.6 and 7.8%). This acceleration of inflation is likely to add more pressure on the ECB.
Investors are now expecting Miss Lagarde to announce the first hike of interest rates in over a decade at the meeting on July,19th followed by a second raise in the September meeting.
The inflation spike generated a modest decline in European stock markets, as investors are witnessing the very beginning of a series of rate hikes. In order to fight inflation, the ECB may be forced to act with stronger-than-expected hawkish monetary policies.
Today, European futures started the new trading session in the green, showing some more optimism. Also, bonds have been affected by this changing paradigm. The price of existing bonds has been negatively impacted, as the new issuances are offering better yields, due to the growing expectation for higher rates.
Yesterday the EUR/USD pair declined. But this seems to be mostly related to the risk-off sentiment seen on the market, since today, there is already a minor rebound.
Live Gold Price – $/oz
In this scenario, gold has lost around 1%, falling to $1,835-1,840. From a technical point of view, gold is now just above an important support zone. A fall below $1,835 could open space for a further decline to $1,800. However, a positive signal may come to light with a return of gold above $1,860-1,865, increasing the chances of further recoveries to $1,900.
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