Forex Today: Hot inflation data provides little support for British Pound

Wednesday, 21 October: the key market developments to watch

With no major macroeconomic releases to provide direction, financial markets are relatively subdued at midweek. Inflation figures have prompted some volatility in the British pound, though it has yet to establish a clear direction against other major currencies.

Annual UK Consumer Price Index (CPI) inflation accelerated from 3.1% in August to 3.5% in September, according to the Office for National Statistics (ONS), exceeding the market forecast of 3.4%. Excluding volatile food and energy prices, core CPI increased by 2.8%, compared with the previous rise of 2.6%. The report also put annual growth in the Retail Price Index at 3.9%, in line with expectations. Tuesday's advance of about 0.5% took GBP/USD above 1.3400 to its highest since mid-September, but the pair is little changed near 1.3370 during Wednesday's European morning. EUR/GBP is slightly lower on the day, trading below 0.8400, whereas GBP/JPY is broadly steady at 211.50.

Tuesday's session ended with the US Dollar (USD) Index lower, as appetite for risk prevailed across financial markets after Wall Street opened on a positive note. By early Wednesday, the USD Index is holding on to modest gains below 102.00, with US stock index futures up between 0.1% and 0.5%. CNBC reported that, after the closing bell, SpaceX announced third-quarter revenue growth of 161%, underpinned by a ninefold expansion in its artificial intelligence business. Tesla's third-quarter earnings are due after Wednesday's market close.

Indirect talks with the US remain under way through intermediary countries, Iran's Foreign Minister Abbas Araghchi said. According to Araghchi, Washington accepted Iran's seven-day proposal but wanted to attach several further conditions, details of which he declined to reveal. He also reportedly demonstrated that the US cannot be relied upon in the negotiating process. After a volatile Tuesday session, crude oil is moving higher on Wednesday, with a barrel of West Texas Intermediate (WTI) gaining about 1% on the day.

Brent reverses losses as Middle East negotiation reports are disputed

Headlines surrounding Middle East negotiations drove yesterday's volatility in oil trading, Deutsche Bank analysts say. They note that Brent “dropped from around $112 to $106 in the early London afternoon after several unconfirmed reports indicated that Qatar and Pakistan had put forward a proposal that could potentially revive talks aimed at ending the conflict in the Middle East.”

That decline was swiftly reversed as the account changed, Deutsche Bank says: “Later, Brent crude started to climb again, as the story was discredited by a diplomat involved in negotiations.” Referring to Bloomberg's reporting, the analysts note that “while talks to reach a deal are ongoing, reports that the negotiating sides were close to a solution were false,” which helped Brent recover much of the ground lost earlier.

USD/JPY remains confined to sideways trading around 158.00 during Wednesday's European morning. Speaking on Wednesday, Japanese Finance Minister (FM) Satsuki Katayama said the government was working closely with the Bank of Japan (BoJ), with no significant divergence in their inflation outlook or policy. Figures released earlier in the day showed annual September growth of 16.7% in Japan's exports and 18.9% in imports. Both readings were below analysts' expectations.

EUR/USD is trading within a fairly narrow band above 1.1200 on Wednesday, extending that pattern into a third consecutive day. A speech by European Central Bank (ECB) President Christine Lagarde is scheduled for later in the day.

Gold is approaching $4,100 early on Wednesday, remaining under pressure after ending Tuesday slightly lower.