News that UK inflation finally slowed to the Bank of England’s 2 per cent target in December inspired Pound fluctuations over the course of yesterday.
While Sterling closed local trading in a slightly stronger position against the Euro, it trimmed gains against the US Dollar as US retail sales increased by slightly more than expected.
The GBP/USD pairing initially posted its most significant gain for over two-weeks but the US sales data, coupled with expectations surrounding Bank of England Governor Mark Carney’s testimony to UK lawmakers, saw Sterling decline.
Carney is scheduled to speak about UK financial stability later today.
The Bank of England’s forward guidance policy was supported by yesterday’s consumer price news as lower inflation gives the central bank to hold interest rates at record lows for longer.
As economist Rob Wood commented; ‘It’s like a “get out of jail free” card. If inflation had been above 2.5 per cent and they were close to hitting 7 per cent unemployment, I think they would be facing a lot more pressure to raise rates this year. As it is, inflation remains subdued, wage growth remains pretty low, and it doesn’t look like there’s any urgent need’.
Similarly, one London-based industry expert asserted; ‘All evidence suggests the BoE are desperate to have rates ultra low for some time. What you’ll see is even stronger, Fed-type language stating that its highly likely that we won’t raise rates even if we go through 7 per cent [unemployment rate].’
The Pound continued to trade higher against the Euro following the release of slightly disappointing growth data for Germany and could climb further if tomorrow’s UK house price report confirms that property values advanced to an over 10 year high in December. The gauge is believed to have risen from 58 to 60.
Friday’s UK retail sales figures may also lend Sterling support as sales are forecast to have risen by 0.3 per cent in December, month-on-month, following a gain of 0.4 per cent in November.
However, the GBP/USD pairing is likely to edge lower today in response to the publication of the Federal Reserve’s beige book.
Although the odds of the Fed continuing with its tapering policy were knocked by last week’s disappointing US non-farm payrolls report, central bank officials have since lent support to the case for bringing quantitative easing to an end and have shored up the US Dollar in the process.
Pound Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6426 ,
Pound Sterling,,Euro,1.2057,
Pound Sterling,,Australian Dollar,1.8449 ,
Pound Sterling,,New Zealand Dollar,1.9661 ,
US Dollar,,Pound Sterling,0.6089 ,
Euro,,Pound Sterling,0.8293 ,
Australian Dollar,,Pound Sterling,0.5421 ,
New Zealand Dollar,,Pound Sterling,0.5083,
[/table]
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