A fairly broad weakening of the US dollar seems to have helped the British pound climb. Panic continues in the cryptocurrency market, and bitcoin has received another major blow.
On Tuesday, the British pound against the dollar reached its highest value since April 2018, and is now just below 1.4200.
Pound's strong fundamentals
Macroeconomic data showed that UK inflation jumped to 1.5 percent in April, the highest level since March 2020 and slightly above the market consensus of 1.4 percent. UK consumer prices could rise further in the coming months due to an increase in regulated household energy prices, higher global oil prices and the base effect when the country was under a tight blockade due to coronavirus infections.
The Bank of England expects U.K. inflation to exceed 2 percent this year before falling back to target in mid-2023. The Q1 employment report suggests that the UK labor market has been broadly stable in recent months, with some signs of recovery.
UK 10-year government bond yields have rebounded from 0.9 percent, and are around their highest level since June 2019. This may be influenced by the prospect of a rapid economic recovery and rising inflationary pressures.
The U.K. on Monday lifted further pandemic restrictions, but Prime Minister Boris Johnson warned that the spread of a new variant of COVID-19 could threaten a further loosening of restrictions scheduled for June 21.
Chinese blow to cryptocurrencies
In the cryptocurrency market, bitcoin extended losses and, falling below $40,000, was trading at its lowest since February 8. The decision issued by the Chinese authorities for financial institutions and payment companies to warn investors against speculative trading in cryptocurrencies may have contributed to this.
The price of bitcoin has fallen about 40 percent from its record high in mid-April this year, when Tesla decided to accept cryptocurrency as a form of payment and said it used company cash to buy digital assets.
Less than two months after that decision, however, Tesla suspended selling vehicles for bitcoins, citing the rapidly growing use of fossil fuels for cryptocurrency mining and transactions.
Tesla's May 12 decision to suspend vehicle purchases using BTC wiped more than $300 billion from the cryptocurrency market, CNBC reported.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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