Sterling rose in European trade against euro, resuming the gains after a hiatus yesterday from off two-month highs, with the pound boosted by surprise UK inflation data, which bolstered the case for a 0.25% rate hike by Bank of England tomorrow.

In Europe, investors are still questioning the upcoming policy path by the European Central Bank despite remarks by ECB President Christine Lagarde about extending rate hikes in the euro zone.

EUR/GBP fell 0.45% to 0.8772, with a session-high at 0.8819.

The pound fell 0.9% against euro yesterday, the first loss in five days, and the largest in 2023 on profit-taking off two-month highs at 0.8718.

Surprise Inflation

UK consumer prices surged 10.4% in February, above estimates of 9.9%, and up from 10.1% in January.

Such a surprise increase in inflation after three months of dips shows the ongoing inflationary risks for the economy.

UK Rates

After the data, pricing for a 0.25% rate hike by the Bank of England tomorrow rose to a full 100%.

Strong Banking System

Bank of England said in a statement following UBS's acquisition of Credit Suisse that the UK banking system remains strong and safe with good capital and liquidity. 

Christine Lagarde

ECB President Lagarde said there's still no evidence that the inflation in the euro zone is slowing down.

She said the ECB isn't finished yet with interest rate hikes this year to reign in inflation.

Gold prices rose in European trade for the first session in three days as the dollar lost ground and amid modest haven demand on the precious metal.

Now investors await the Fed's policy decisions later today, expected to increase interest rates by 25 basis points.

Prices Today

Gold prices rose 0.35% to $1,946 an ounce, with a session-low at $1,934, after losing 1.9% yesterday, the second loss in a row, and the largest since February 3 on active profit-taking off one-year highs at $2,009.

The precious metal sustained heavy losses yesterday as US 10-year treasury yields rebounded, pressuring non-yielding assets. 

US Treasury Secretary Janet Yellen said the US banking system is stable but it might require more steps of support if the deposits became under pressure.

The Dollar

The dollar index fell 0.2% on Wednesday, sharpening losses for the fifth straight session, and plumbing five-week lows at 102.98 against a basket of major rivals.

The decline comes as haven demand on the greenback slowed down with the global banking crisis easing following UBS's acquisition of Credit Suisse.

The Fed

Markets are pricing in a 89% chance of a 0.25% rate hike today by the Fed, while chance of no change in rates standing at 11%.

The Federal Reserve

The Fed is expected to showcase more clues about the expected final neutral levels for interest rates this year as inflation is brought back under control.

Estimates

Analysts believe the markets to still be volatile, but bleeding from the banking sector was stymied following urgent interventions from authorities, in turn hurting the haven appeal of gold.

Traders are monitoring the Federal Reserve's tone about policies today to determine the path forward for gold prices.

The SPDR

Gold holdings at the SPDR Gold Trust fell 1.44 tones yesterday, the first decline since March 10, to a total of 923.11 tones, giving up 924.55 tones, which was the highest since October 2022.

Oil prices rose on Tuesday as the dollar stabilized against most major rivals and amid spreading calm in the markets in regards to the banking system.

Otherwise, Russian deputy prime minister Alexander Novak expects Russia to achieve the target of cutting down production by 500 thousand bpd in the next few days.

In other news, the First Republic bank's stock spiked over 25% as the banking sector rebounded overall following US treasury secretary Yellen's supportive remarks for covering deposits in banks.

Investors expressed optimism as well, as JPMorgan Chase started providing counsel to the First Republic bank on strategic alternatives. 

The Fed is meeting this week to decide on policies, with most analysts expecting a 0.25% rate hike, but the Fed might surprise us and hold rates flat to calm the markets.

Otherwise, the dollar index stabilized at 103.2 as of 19:39 GMT, with a session-high at 103.5, and a low at 103.00.

Brent futures due in May rose 2.1%, or $1.53 to $75.32 a barrel. 

US crude futures due in April rose 2.5%, or $1.69 to $69.33 a barrel.

The Canadian dollar fell against most major rivals following forecast-missing data and amid the ongoing banking crisis. 

Canadian Inflation

Earlier data showed Canada's consumer prices rose 0.4% m/m in February, while analysts expected a 0.5% increase.

Core inflation rose 4.8% y/y, also missing estimates of a 4.9% increase.

CAD/USD fell 0.3% to 0.7392 as of 19:48 GMT.

The Dollar

The dollar index stabilized at 103.2 as of 19:39 GMT, with a session-high at 103.5, and a low at 103.00.

Eyes on Fed

Fed Chair Jerome Powell welcomed UBS's acquisition of Credit Suisse for 3 billion francs, in a deal to aims to restore stability to the banking sector.

After several days of the crisis, the Swiss National Bank intervened to offer liquidity of up to 50 billion francs to support Credit Suisse, which entered into intense negotiations with its main Swiss competitor UBS that ended in the acquisition deal.

The Fed is meeting this week to decide on policies, with most analysts expecting a 0.25% rate hike, but the Fed might surprise us and hold rates flat to calm the markets.

US two-year treasury yields rose by 24 basis points to 4.17%, while one year and three year yields rose by 24 and 20 basis points respectively, with 10-year yields rising by 10 points. 

Aussie

The Australian dollar fell against its US counterpart by 0.7% to 0.6667 as of 19:52 GMT.