The Pound (GBP) exchange rate fell sharply against all of its most traded peers on Tuesday after weaker than forecast inflation data out of the UK instigated a bloodbath for the currency.
Sterling tumbled against the US Dollar, Euro, Australian Dollar, and other most traded peers after the London based Office for National Statistics (ONS) said that inflation in the UK slowed sharply in September. The inflation rate slowed to its slowest pace in five years, reducing the pressure on the Bank of England to raise interest rates, something that is a negative for the Pound.
In September, Consumer prices increased by 1.2%, a fall, from the preceding month’s figure of 1.5%. The figure was worse than economist expectations for a figure of 1.4%. The cause of the slowdown was being pinned on a drop in the price of food and fuel.
The Bank of England’s target rate for inflation is 2%.
Core CPI, which excludes food, energy, alcohol, and tobacco costs rose at a rate of 1.5% last month, down from 1.9% in August. Analysts had expected core prices to rise 1.8% in September.
‘Lower inflation, means lower rates, means lower Sterling. Sterling has gone back to be a conventional interest rate story,’ said the head of global foreign exchange strategy at Royal Bank of Canada Adam Cole.
The slowing inflation rate now means that the Bank of England is likely to refrain from hiking interest rates anytime soon. With fears over a global economic slowdown, growing the bank is now forecast to raise rates later than previously forecast.
‘The Bank of England is going to stay on hold much longer. They have been giving this indication in their last few communications,’ said an economist from Crossbridge Capital.
Eurozone Recession?
Also dragging on the banks likelihood of raising rates comes from the weakness in the Eurozone. Data out of Germany showed that Economic sentiment in the currency bloc’s largest economy tumbled sharply in October.
With Europe heading towards recession, demand for UK goods is taking a knock.
A separate report released by the ONS showed that house prices in the UK increased by 11.7% in August, unchanged from the previous months figure.
Sterling Forecast to Weaken Further
The Pound is likely to fall further against its major peers as concerns over global political events and a faltering global economy weigh.
On Wednesday, the currency will experience volatility from the release of the latest Unemployment and Wage growth figures. , more disappointing wage figures will likely soften the Pound further as it suggests that living standards in the country remains under pressure.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.5958 ,
Pound Sterling,,Euro,1.2579 ,
Pound Sterling,,Australian Dollar,1.8239 ,
Pound Sterling,,New Zealand Dollar,2.0282 ,
US Dollar,,Pound Sterling,0.6267 ,
Euro,, Pound Sterling ,0.7932 ,
Australian Dollar,, Pound Sterling ,0.5480 ,
New Zealand Dollar,,Canadian Dollar,0.4925 ,
[/table]
