The Pound declined to session lows against the Euro and US Dollar after a report released by the Office for National Statistics showed that the UK’s annual rate of inflation fell to its lowest-level in over four-years last month.
GBP to USD fell by 0.22% and eased away from a 19-month high against the Euro to dip below the 1.25 level.
The report released by the ONS showed that the annual rate of inflation in the UK fell from April’s figure of 1.8% to 1.5% in May, making it the lowest inflation figure seen since October 2009. Economists had been expecting the annual rate of inflation to fall to 1.7%.
The data marks the sixth consecutive month in a row where inflation has been below the Bank of England’s inflation target rate of 2%.
The fall in inflation was a result of declining food prices and transport costs. The fall in food prices was thought to be the result of a pricing war currently underway between the UK’s major supermarkets.
“This is very good news for consumers’ purchasing power and it also affords the Bank of England flexibility, as it toys with the idea of raising interest rates before the end of 2014,” said the chief UK and European Economist at IHS Global Insight.
The data lowered investor expectations that the Bank of England could raise interest rates before the end of the year as low inflation gives the Central Bank more leeway to maintain interest rates at the record low level of 0.5%.
“There is pressure on Mark Carney and the rest of the MPC to hike rates on the back of growth and housing market concerns, but given their central mandate of price stability, there is little cause to alter the current policy as it stands,” said an economist.
GBP Exchange rate update- 18/06/14
The Pound remains close to a five-year high against the US Dollar and is just off of a 20-month high against the Euro as the markets settled into a wait and see pattern ahead of the release of the Bank of Englands June policy meeting and the US Federal Reserve’s policy meeting statement. Sterling is likely to make gains as economists widely forecast that the MPC minutes will give further indications that the BoE is considering raising interest rates before the end of the year.
Comments made by BoE policy makers last week and over the weekend have increased expectations for a rate hike. The US Dollar meanwhile is likely to rally overnight as the Fed is expected to be more hawkish as to when it will consider raising interest rates as the economy continues to improve.
The Euro meanwhile is likely to stay under pressure as investors continue to favour other currencies after the ECB’s policy decision earlier in the month. Today’s Eurozone construction output data could cause some volatility for the single currency.
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,1.6952 ,
Pound Sterling,,Euro,1.2490 ,
Pound Sterling,,Australian Dollar,1.8135 ,
Pound Sterling,,New Zealand Dollar,1.9589 ,
US Dollar,,Pound Sterling,0.5898 ,
Euro,, Pound Sterling ,0.8005 ,
Australian Dollar,, Pound Sterling ,0.5506 ,
New Zealand Dollar,,Pound Sterling,0.5099 ,
[/table]
Comments are closed.