On the currency market, renewed fears of a recession overshadowed speculation on rate hikes by the European Central Bank (ECB) and the Bank of England (BoE) on Wednesday. The fears were triggered by new inflation data from Great Britain and the euro zone. In the UK, consumer prices rose 9% in April to a 40-year high. The pound sterling then plummeted, temporarily falling 1 percent to $1.2368. Because of rising wage growth and low unemployment, it looked like the Bank of England would have more leeway, said Hargreaves Lansdown’s market analyst Susannah Streeter. “Now the high costs for consumers will result in falling purchasing power, which will have a very strong impact on the performance of the UK economy.”
In the euro area, inflation in April remained at the high level of the previous month of 7.4 percent. Many investors are now expecting the European Central Bank to raise interest rates more quickly. Meanwhile, Fed Chairman Jerome Powell had not ruled out a more aggressive approach by the US Federal Reserve in the fight against inflation. The dollar then recovered, while the euro fell 0.7 percent to $1.0472.
The central banks are walking a fine line, said investment strategist Ambrose Crofton of asset management at US bank JP Morgan. If they raised interest rates too aggressively, they plunged the economy into recession. If they are too passive, there is a risk of a wage-price spiral. Against this background, commodity investors feared falling demand and sold copper. The base metal fell 1.6 percent to $9,212 a ton. The price of European wheat fell a good two percent to EUR 429 per ton.