After reviving a two-month high, the pound sterling had a slight sell-off in October as price pressures in the UK economy subsided dramatically. The Consumer Price Index (CPI) rose at a reduced annual rate of 4.6%, which is encouraging given UK Prime Minister Rishi Sunak’s pledge to halve inflation by year’s end. In the meantime, the UK Producer Price Index (PPI) dropped, indicating that a weak demand forecast had prompted manufacturers to lower their prices at the factory gates.
The GBP/USD pair gave up its nominal gains following a soft inflation report, but overall demand is strong because market participants’ risk appetite has improved. The demand for risk-perceived assets has increased significantly following a slowdown in consumer inflation in the US economy and heightened expectations that the Federal Reserve (Fed) won’t raise interest rates any more.
The US Dollar (USD) gains against the Euro (EUR) slow down a little, which encourages the EUR/USD pair to give up some of its recent significant gains and move back towards the 1.0870 zone on Wednesday. Conversely, the Greenback seems modestly bid in the low 104.00s as traders continue to process the US inflation data that came in below expectations on Tuesday and the severe sell-off that followed in the USD Index (DXY). The US yield curve is showing no discernible trend, and the Greenback’s so-far weak rise coincides with a high level of caution ahead of the release of additional inflation indicators, this time from Producer Prices and Retail Sales for October.
After traders paid abnormally high fees to hold onto their long positions due to recent exuberance, funding rates on the major token futures have begun to return to normal levels. During the weekend, significant fluctuations in spot markets caused open interest to soar to nearly $35 billion, a sign of heavily leveraged wagers by traders looking for further higher prices. Since the $24 billion mark at the end of October, there has been a nearly 40% growth.