The New York Stock Exchange is set to open sharply lower on Wednesday morning following the release of higher-than-expected inflation figures, which have totally upset expectations of further rate cuts.

Half an hour before the opening, futures contracts on the major New York indices all posted losses of more than 1%, heralding a sharp decline early in the session.

The Labor Department announced this morning that consumer price inflation in the United States accelerated last month due to high electricity, housing and transportation costs.

Excluding energy and food, two traditionally volatile categories, the annual inflation rate held steady at 3.8% last month, whereas the consensus was for a decline to 3.7%.

The stronger-than-expected data - particularly in the services sector - fuelled concerns that persistent inflation would force the Fed to keep rates higher for longer than expected.

The probability of a Fed rate cut in June fell from 61% last week to less than 18% following the release of these figures, according to the CME Group's Fedwatch tool.

Inflation figures have now been rising steadily for five months, so the market can no longer ignore this acceleration as merely temporary.

These data suggest that the Federal Reserve will continue to stay on the sidelines for the time being, and will postpone its first rate cut until the second half of the year, especially given the current strength of the economy", stressed Commerzbank analysts.

As Wall Street opened, European markets were moving on divergent notes. Germany's DAX was down 0.1%, the Euro STOXX 50 gave up 0.2%, but the FTSE gained just under 0.4% in London.

On the currency front, the greenback soared against all the other major benchmark currencies, with the euro dropping almost 0.7% to 1.0775 against the greenback.

On the government bond market, the yield on 10-year Treasuries, the real benchmark for the bond market, climbed to almost 4.49%, returning to its highest level since November.

The market will be informed early in the session of wholesale inventories, followed by weekly crude oil reserves.

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