Both the Pound Sterling to Euro (GBP/EUR) exchange rate and the Pound Sterling to US Dollar (GBP/USD) exchange rate tumbled during the European session on Tuesday.
The Pound shed all of yesterday’s gains as investors reacted to a disappointing UK Consumer Price Index.
Sterling started off the week bullishly, trending higher against rivals like the ‘Greenback’, Euro and ‘Aussie’ as a result of hawkish comments from Bank of England Governor Mark Carney.
Carney asserted that average wage growth doesn’t necessarily have to rise to the pace of inflation before borrowing costs are increased.
The insinuation that a rate hike could still be on the horizon in 2014 inspired notable Pound gains.
However, the odds of a rate increase taking place this side of Christmas were knocked once again as the pace of UK inflation was shown to have slowed by more than economists anticipated in July.
A month-on-month slowing in price gains of -0.2% had been forecast, but consumer prices actually eased by -0.3%.
On the year, the non-core consumer price index came in at 1.6% in July.
This was lower than the 1.8% reading anticipated and was down from 1.9% in June.
The core consumer price index dipped from 2.0% to 1.8% last month.
According to the Office for National Statistics (who are responsible for compiling the figures) the price of alcohol and tobacco slid by 0.7% in July, month-on-month.
The result reduces the pressure on the Bank of England to bring forward its timeline for increasing interest rates and the Pound accordingly weakened against the majority of its most-traded currency counterparts.
The Pound Sterling to US Dollar (GBP/USD) exchange rate fell by over 0.45%
The Pound Sterling to Euro (GBP/EUR) exchange rate fell by 0.4%
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate fell by more than 0.6%
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate dropped by 0.3%
The disappointing consumer price index prompted this response from economist Jeremy Cook; ‘For the majority of the Bank of England’s Monetary Policy Committee, this figure will come as a bit of a relief. No policymaker would want to be caught between the rock and the hard place of a decision between heading off an inflation number running higher and a wage picture that is seeing pay fall in both real and nominal terms. The unemployment rate can easily come lower before inflation pressure pick up and, with that inflation outlook, we can easily see the Bank of England holding off on a normalisation of monetary policy into Q1 of next year.’
The UK’s non-seasonally adjusted Producer Price Index Input fell by -7.3% in July, year-on-year, while the non-seasonally adjusted Output PPI eased -0.1% lower.
Britain’s Retail Price Index drooped by -0.1% on the month in July and was up 2.5% on the year, less than the 2.6% reading anticipated.
Pound Sterling (GBP) Exchange Rate Forecast
Later today further movement in the Pound Sterling to US Dollar (GBP/USD) exchange rate could be caused by the US Consumer Price Index for July, US Building Permits figures and US Housing Starts data.
The US CPI is expected to come in at 2.0%, right at the Federal Reserve’s target.
If this proves to be the case the Pound Sterling to US Dollar exchange rate could extend declines.
Tomorrow Pound Sterling (GBP) volatility could be occasioned by the Bank of England’s policy meeting minutes.
If the minutes reveal that one member of the Monetary Policy Committee voted in favour of hiking interest rates earlier this month, the Pound could recoup all of today’s losses.
The Pound Sterling to Euro (GBP/EUR) exchange rate could also be affected by the Eurozone’s Construction Output report.
Similarly, the minutes from the Federal Open Market Committee’s last policy meeting will also impact the Pound Sterling to US Dollar (GBP/USD) exchange rate.
Pound Exchange Rate Gains against Euro, Pound to USD Steady
Yesterday saw the Pound fall against nearly all of its major peers after some less-than-impressive inflation data.
European data has been relatively sparse at the beginning of the week. A positive result from the non-seasonally adjusted Eurozone Current Account data went a little way towards repairing the damage from the negative Gross Domestic Product data last week.
The US Dollar has enjoyed a bullish run which doesn’t have a clear end in sight. The year-on-year Consumer Price Index met with predictions at 2.0% which was the Federal Bank’s target figure.
The Pound to Euro exchange rate is currently trending in the region of 1.2521.
The Pound to US Dollar exchange rate is trending around 1.6652.
Today’s Minutes of the Bank of England Monetary Policy Committee Meeting, held on 6 and 7 August 2014, have yielded some interesting results. Despite the fact that the interest rate has remained at 0.5%, it transpires that only 8 of the 10 members voted for the continuation of the record low rate. The change from a unanimous vote, seen over the past few meetings, is likely to bolster the pound as speculation for a rate hike before the end of the year has been rekindled.
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,1.6649,
Pound Sterling,,Euro,1.2471,
Pound Sterling,,Australian Dollar,1.7833,
Pound Sterling,,New Zealand Dollar,1.9694,
US Dollar,,Pound Sterling,0.6007,
Euro,,Pound Sterling,0.8020,
Australian Dollar,,Pound Sterling,0.5606,
New Zealand Dollar,,Pound Sterling,0.5050,
[/table]
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