Daily digest market movers: Pound Sterling recovers even as US Dollar remains firm

The Pound Sterling bounces back to 1.2460 as the United Kingdom ONS reports higher-than-expected inflation rate for March. Annual headline inflation rose 3.2%, higher than expectations of 3.1% but slowing from the prior reading of 3.4%. Monthly headline inflation grew steadily by 0.6%.

UK’s annual core CPI data, which strips off volatile food and energy prices, grew by 4.2%, more than the 4.1% expected, but significantly decelerating from February’s reading of 4.5%. The core inflation data is the Bank of England’s preferred inflation measure for decision-making on interest rates. even as the measure came in slightly higher than expected, it clearly shows that price pressures are on course to return to BoE’s desired rate of 2%.

March’s inflation data is unlikely to significantly influence speculation for the BoE pivoting to rate cuts, which financial markets are currently expecting from November, according to rate future markets, Reuters reports. 

On the global front, dismal market sentiment due to worsening Middle East tensions and a hawkish interest rate guidance from Federal Reserve Chair Jerome Powell has been maintaining downward pressure on risk-sensitive assets. S&P 500 futures are posting some losses. 

Fears of further escalation in Iran-Israel tensions have deepened as Israel vowed to retaliate against Iran’s attack. The US said it is prepared to impose sanctions on Iran.

The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, hovers near a fresh five-month high around 106.40. The USD Index is expected to extend its upside as Fed Powell said on Tuesday that there is a need to hold interest rates higher for longer given strong labor demand and slowed progress in inflation declining to the desired rate of 2%.