Pound drops due to negative inflation

16 November, 2016

Ashley Finill

Yesterday was a fairly volatile day on the currency market due to numerous data releases throughout the day. When the markets opened in the morning Sterling had already lost around 1% on the Euro, this could be from the market steadily digesting last week’s political on goings with the Trump’s shock win in the US election and more information being released on Brexit. GBP/EUR has also been testing a significant ceiling of resistance that it has failed to push through. On the data front there were key releases yesterday which had an impact on the rates. Firstly and most importantly was the surprise fall in the UK’s inflation, analysts expected the figure to be up to 1.1% from the previous 1.0% but in fact the figure came in lower at 0.9%. This could send alarm bells to the BoE and should this trend continue the threat to cut interest rates further in the UK could become a reality rather than just speculation, should that happen Sterling could once again be in a very unstable condition come the turn of the year with the whispers of parity potentially becoming more vocal. A weaker currency typically increases inflation so if inflation levels are dropping even with the extremely low value of the pound recently, this is a serious concern that there are underlying inflation issues within the UK economy.

The Eurozone Posted GDP figures which came in as expected and brought some more stability to the Euro against both the Pound and the US Dollar however later in the Afternoon the US’s retail figures posted a figure of 0.8% which was expected to come down from last month but instead was up 0.1% and boosted the Dollar during the afternoon.

Today there is not too much to note in the way of data, the UK release average earnings data and the unemployment rate which are both expected to read the same figure as last month, in the afternoon industrial production is to be recorded which is expected to come in better than last month.

Now the markets have time to breathe market sentiment may sway back against The Pound with signs of that maybe already happening yesterday. Sterling has enjoyed a good run these past few days with the Brexit parliament rule going in its favour and also the trump win weakening the Euro but this could easily reboot Sterling’s Journey from climb to fall. With inflation now down and Brexit on the Horizon now could be a great time to secure your currency at the levels we are seeing before it’s too late. 2017 will be a volatile year with Trump to take office in January and the official announcement to invoke article 50 for the UK to leave the Eurozone, all big reasons why the Euro could take the driving seat sending the Pound down so it may be wise to consider securing your currency before it’s too late.