Pound Sterling (GBP) Forecast: Sterling slumps to session lows as inflation data falls below BoE target

The Pound fell against the majority of its most traded peers and slumped to a session low against the US Dollar and Euro after a report showed that UK consumer price inflation dropped below the Bank of England’s target of 2%.

Against the Euro, Sterling slid for a second consecutive day and edged back under the 1.22 level.

According to the Office for National Statistics the UK’s inflation rate dropped to 1.9% last month. The figure marks the first time since 2009 that inflation has fallen below the Bank of England’s target of 2%. Consumer Prices also fell more than forecast in January. They declined by 0.6%, down from December’s figure, and was a bigger decline than the 0.5% expected by economists.

“With GBP/USD testing four-year highs yesterday, a soft inflation number was always going to cause a wobble in the Pound. The Theme of the day continues as Sterling sold in reaction to the inflation data,” the executive director of U.K. corporate foreign-exchange sales at Nomura International Plc told Bloomberg.

The lower inflation level was touted as being a result of a fall in the cost of recreational services and goods, and alcohol and tobacco.

The report may have knocked the Pound but it was good news for the UK government. Prime Minister David Cameron took to twitter to say; “Today’s fall in inflation is more evidence our long term economic plan is working. We want to ensure a secure future for hard-working people.”

The Pound is likely to see movement in tomorrow’s session as the BoE monetary policy committee publishes the minutes of its latest meeting. Unemployment rate data is also due for release and is expected to remain unchanged at 7.1%.