There has been more volatility in currency and precious metal markets today following the latest US inflation figures released this afternoon.

Headline US inflation came in at 6.4% annually, only a slight dip from December’s 6.5%. On a month-by-month basis inflation actually increased by 0.5%, up from 0.1% in December. Despite the headline figure continuing the recent trend of disinflation, a 0.1% reduction is a far cry from the kind of fall markets and consumers had hoped to see.

Inflation may have peaked in the US, but is starting to look entrenched, hitting a plateau rather than falling. All of this is in spite of the Federal Reserve aggressively hiking rates over the past year, and could spur further increases as they continue to try and bring inflation back down towards their 2% target.

USD-GBP Chart 140223

GBP – USD currency chart. Source BBC.

The release of the figure saw instant currency fluctuations for the dollar as markets weighed up what it might mean for the Fed’s next policy committee meeting. Sterling has had a rollercoaster day so far, trading up and down in a short space of time against the dollar as seen above. The dollar so far seems to be on a mostly upward trajectory, as markets shift towards more interest rates to come, and staying higher for longer. Volatility remains high however given inflation failed to deviate higher or lower, giving ammo to both camps arguing over the direction rates should take.

Precious metals have already seen prices fall in the past fortnight as the dollar regained some momentum. Gold is down more than 3% in the past month after almost reaching $2,000 per ounce. In the UK, this has seen gold pull back from its new all-time high almost two weeks ago. Silver has also seen a large pullback recently, down nearly 10% in the US. Here in the UK silver has fallen below £18 per ounce for the first time since December 2022.

Data on the US economy will remain a key focus for investors in the next couple of weeks. If the US economy continues to look resilient, while inflation fails to come down quickly enough, the Fed may have little choice but to hike by another 50 basis points. Such a move would likely trigger further strength for the dollar, and push precious metals down further.

Any weakening in US jobs or productions figures however could give the Fed the impetus for a smaller 25 basis point hike before pausing over the summer to see if interest rate hikes are filtering through to US inflation.