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Pound retreats despite UK inflation surging to a six-month high

currency-newsPound retreats despite UK inflation surging to a six-month high
The pound trended lower on Wednesday, retreating in spite of surprisingly strong UK CPI figures.

Trade in Sterling is mixed this morning, with GBP/EUR muted at €1.1948, GBP/USD subdued at $1.2895 and GBP/CAD rangebound at C$1.7081. However, GBP/AUD and GBP/NZD have both rallied, striking AU$1.9427 and NZ$2.0324 respectively.

Coming up, the publication of the UK’s latest retail sales figures could breathe some life back into GBP exchange rates this morning if sales growth rebounds in line with expectations in January.

What’s been happening?               

The pound fell back mid-week, with GBP/EUR ticking below €1.20 and GBP/USD dipping below $1.30 in spite of a stronger-than-expected consumer price index.

According to the Office for National Statistics (ONS) domestic inflation surged from a three-year low of 1.3% to 1.8% in January, roaring past expectations for a more modest increase of 1.6%.

However this failed to inspire much upside in the pound, with Sterling sentiment weakening through much of the session in response to renewed Brexit uncertainty after the EU’s chief negotiator Michel Barnier rejected Boris Johnson’s calls for a Canada-style free trade deal between the UK and EU.

Meanwhile, the euro traded in a narrow range on Wednesday, with the single currency struggling to find momentum as traders continued to express concern over the state of the Eurozone economy, particularly Germany which analysts fear could be on the brink of a recession in 2020.

For USD investors the focus was on the minutes from the Federal Reserve’s January policy meeting, with the US dollar trending higher as policymakers see US economic growth continuing at a moderate pace.

What’s coming up?

Top of the agenda today will be the publication of the UK’s latest retail sales figures.

These are predicted to show a sharp rebound in sales growth in January, with forecasts that sales will have jumped from -0.6% to 0.7%.

This will be the first increase in retail sales since July and is likely to boost hopes that the UK economy will have returned to growth at the start of 2020.

Across the Channel, the publication of the Eurozone’s latest consumer confidence survey could weigh on the euro today as analysts predict the coronavirus outbreak will have taken its toll on household sentiment.

Finally, the US dollar may face some pressure this afternoon as the Philadelphia manufacturing index is expected to report a slowing of factory activity this month.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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