Sterling Slips On Lower Inflation

19 July, 2017

Simon Eastman

Sterling dropped sharply again on Tuesday following the headline inflation reading, which showed a surprise fall, compared to expectations.

Markets were anticipating the headline Consumer Price Index to remain unchanged at 2.9 percent but in fact the rate dropped to 2.6 percent, the first drop in the level since October 2016. The drop was mainly attributed to a fall in the price of petrol and diesel, which have fallen for a fourth month in a row now. Some experts thin inflation may well rise again, while others seem to feel we have seen the peak, with the extra cost caused by the drop in the exchange rates, now having filtered through in full to the end user.

The result was a fall in the pounds value yet again, by nearly a cent and a half against the euro and a cent against the US dollar as a result causing more misery for those who missed the spike on Friday in the hope the rally would continue. The drop was down to the fact lower inflation takes the pressure off the Bank of England to consider raising interest rates which there has been some speculation over the past few weeks since the split to hold rates at the current 0.25 percent, went from 1-7 to 3-5 to hold. In the meantime, a couple of MPC members have been outspoken on the need to consider raising interest rates but the inflation results have poured water on these flames, leaving the pound struggling once again.

The German and EU ZEW survey results, although under expectations could do little to stop the single currencies rally as it gained against the pound and rose to fresh highs against the US dollar, while a speech by Bank of England governor Mark Carney was just to introduce the new polymer £10 note, adorned with Jane Austen.

Today we have a really quiet day on the data front with nothing of note coming out all day apart from some crude oil stock data for the US this afternoon, so we are likely to remain sentiment led today. With that in mind, those looking to buy currency with sterling might be wise to book something sooner rather than later in case we see the slide continue back down to the levels seen last week. Call one of the CI team today to discuss the options available to minimise your currency risk.