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Pound soft as UK core inflation slows faster than expected

currency-newsPound soft as UK core inflation slows faster than expected
A slowdown in UK inflation in December weighed upon the pound, keeping it flat versus some of its major peers.

The pound starts today on soft form as well. GBP/EUR is trending at €1.1257, whilst GBP/USD has fallen -0.2% to US$1.3768. The GBP/AUD exchange rate is flat at AU$1.7310, GBP/NZD is stuck at NZ$1.8995, and GBP/CAD is unmoved at C$1.7146.

There is no UK economic data set for release today, but read on to see why a speech from Bank of England (BoE) official Michael Saunders could give the pound a boost…

What’s been happening?

The pound trended flatly versus the euro and US dollar yesterday following the release of December’s UK consumer price index figures.

GBP/EUR and GBP/USD weren’t able to record any gains, as a slowdown in price growth means the odds of the Bank of England (BoE) opting to hike interest rates in the near-term have dwindled even further.

Overall price growth slowed from 3.1% to 3% as forecast, while core price growth dropped further than expected from 2.7% to 2.5%.

The pound was prevented from recording notable losses, however, by the fact that a slowdown in price growth at least means the UK’s embattled consumers won’t see their household budgets squeezed quite so severely, improving the outlook for the spending-driven economy.

Further helping to keep the GBP/EUR exchange rate from falling below opening levels was news that the Berlin division of Germany’s Social Democratic Party (SPD) had opposed the party’s opening of new coalition negotiations with Angela Merkel and her Christian Democratic Union (CDU).

This dampens hopes of Germany’s political situation improving, with the euro also weighed down by a month-on-month decline in German wholesale prices, suggesting inflationary pressure is abating.

Meanwhile, GBP/USD struggled as buyers returned to the US dollar after several days of selling pushed the currency towards undervaluation.

What’s coming up?

The only development on the UK’s economic calendar today will be a speech from BoE official Michael Saunders.

Saunders is one of the more hawkish members of the Monetary Policy Committee (MPC), so there is a chance he may say something that gets excites markets.

Today’s finalised Eurozone consumer price index figures are predicted to be something of a mixed bag. Overall price growth is expected to have been revised down -10 basis points on preliminary estimates to 1.4%, whereas core price growth is expected to hold steady at 0.9%.

Month on month price growth is predicted to accelerate from 0.1% to 0.4%. Overall the data suggests a solid but unimpressive state of affairs, which is unlikely to do anything to boost expectations of monetary tightening from the European Central Bank (ECB) in the near-term.

While there are some interesting pieces of medium-impact data on the calendar today for the US, market focus may be on tonight’s speeches from Federal Reserve officials Charles Evans and Loretta Mester.
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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