Oil gains after inventory draw; GBP seesaws on data and Brexit talk

Summary:

• Oil makes steady gains after another inventory draw

• Pound gains as inflation unexpectedly rises

• But then GBP falls back on Brexit comments

• Ripple consolidates after recent spike higher

• TRY and ZAR gain despite a further rise in US yields

The latest inventory figures for US crude oil have shown another drop, but the decline was less than the consensus forecast and also the prior reading. The EIA headline number came in at -2.1M to mark a 5th consecutive decline but it should be pointed out that it was also above both the expected -2.7M according to a survey of analysts and the previous reading of -5.3M. Last night’s private API figure showed a print of +1.3M and perhaps because this may have impacted trader’s expectations heading into today’s number as the initial market reaction was positive although a little muted to the upside. Oil remains not far from key resistance around the 80 mark and unless that is broken then the upside is limited.

The most recent data on UK inflation has shown that price pressures rose markedly from their last release with the leading gauge remaining comfortably above the Bank of England’s target. The consumer price index for August rose by 2.7% in year-on-year terms, above the July release of 2.5% and is a bigger shock when you consider that most had expected a pullback to 2.4%. The core figure is often seen as a more true reflection and this also rose when a fall was expected, coming in at 2.1% after last time out showed 1.9%.  The pound has jumped in the immediate reaction reaching its highest level since July against the US dollar above $1.32 and also made a 7-week peak against the Euro just below €1.13. While inflation remains stubbornly above the BoE’s target of 2% economic data is taking a back-seat for the foreseeable future as far as driving the pound is concerned with the ongoing Brexit negotiations a far more important factor.

On this front there have been several interesting developments today as UK PM May attends an informal 2-day meeting in Salzburg with the EU’s chief negotiator Michel Barnier, who himself said just yesterday that the bloc was planning a revised proposal on the Irish border issue. The swift swoon in sterling in recent trade came after reports from The Times newspaper that PM May is planning on rejecting an “improved” offer from the EU on the highly contentious issue of the Irish border. The stakes are increasing as far as Brexit negotiations are concerned and the importance of the outcome can not be understated in terms of how key it will be to the future direction of sterling.

Tuesday turned out to be beneficial to Ripple investors as the price of the cryptocurrency surged despite a lack of similar momentum in other virtual coins. The amazing rally is hard to explain but it could have something to do with the news we were offered the day before. Namely Ripple is reportedly about to officially launch xRapid, a commercial application using the cryptocurrency XRP as a kind of a “bridge” between currencies and allowing payment providers as well as banks to process faster cross-border transactions. Today there have been further small gains with the market higher by 0.2% on the European close.  

Emerging currencies are on the rise on Wednesday defying a rise in the US bond yields that could in theory spark a capital outflow from more risky markets. The 10-year US bond is now yielding 3.06%, close to the highest level this year as traders look for possibly 2 more interest rate hikes in 2018. Despite this USDZAR is down 1.6% and USDTRY drops by 1.3% as these emerging markets recoup some of the heavy losses. Traders will scrutinize the interest rate decision in South Africa on Thursday.