Stark contrast for Pound against gains

18 December, 2013

Rob Bastin

So far the month of December has been a stark contrast to that of November for the Pound. Having reached year plus highs at the beginning of the month, sterling has struggled to push on any further and against most major currencies has lost 2-3% value in the last couple of weeks. With traders taking a view that the Pound was overpriced at its previous peaks, it now finds itself desperate for some economic support to stall and turn around the current slide against the Euro in particular.

Yesterday’s headline news was inflation in the UK has dropped even further now sat at 2.1% on the year, just 0.1% above the Bank of England’s target rate, and also 0.1% below the expectations of this announcement. On paper this looks to be a positive thing for the UK and for the recovering economy but unfortunately for currency purposes a lower level of inflation in seen as something that can prevent future interest rate hikes as this is normally a tool used by the BoE to combat high inflation. Subsequently sterling lost further ground against most of its major pairs during yesterday’s trading. Inflation was the focus of the day yesterday with the Euro-zone announcing a rate of 0.9% against an expected 1% on the year, and the US posted a rate of 1.2% against a forecast 1.3%.

Today we look ahead at one of the more pressing releases for the Pound that will dictate the initial timescale before the BoE consider any future change in interest rates. Unemployment came down last month to a headline rate of 7.6% and this is not expected to change this month. The markets will however be looking at closer details of the claim cont and change in average earnings for indications on how the employment market is recovering. These figures are to be announced at 9:30am along with the minutes from this month’s interest rate decision where all policies were held as expected. These minutes are again expected to show a unanimous vote towards this month’s decisions.

Later this evening sees the latest interest rate decision from the US at 7:00pm. A hold at 0.25% is almost certain so it will be the conference at 7:30pm that hopefully gives the market some greater insight into the ongoing struggles in the US where they continue to try and balance the various monetary policies at hand to sustain a recovery whilst reducing their significant levels of debt.