Disappointing inflation data keeps pound unsteady

Yesterday’s weaker-than-expected UK inflation data cast doubt over the likelihood of an interest rate hike in May from the Bank of England, leaving the pound on unsteady ground.

The pound is largely on solid form this morning. GBP/EUR has weakened -0.1% to €1.1419, but GBP/USD has risen 0.2% to US$1.4024. GBP/AUD is flat at AU$1.8211, GBP/NZD has risen 0.2% to NZ$1.9538, and GBP/CAD has fallen -0.2% to C$1.8274.

Read on to see which releases from today’s slew of UK data are likely to be the most impactful for Pound exchange rates…

What’s been happening?

The pound was on mixed form yesterday, left trending uncertainly after the latest UK inflation data showed a stronger-than-expected slowdown in the rate of consumer price growth.

Core price growth slowed from 2.7% to 2.4% year-on-year during February, missing forecasts for 2.5% growth, while overall price growth fell from 3% to 2.7%, against expectations for 2.8%.

This could alleviate pressure upon the Bank of England (BoE) to hike interest rates, as falling prices will relax the squeeze on household budgets.

Markets had priced-in a rate hike from May, so GBP was left rattled after the latest data suggested that the Monetary Policy Committee (MPC) may be able to sit on their hands for longer.

GBP/EUR was able to make gains, however, as the latest’s ZEW survey results for Germany and the Eurozone largely showed a weakening of sentiment.

The German expectations index for March dropped from 17.8 past the forecast score of 13 to hit 5.1, while the Eurozone’s economic sentiment index dropped from 29.3 to 13.4.

GBP/USD was stuck recording minor losses, as markets focused upon tonight’s monetary policy announcements from the Federal Open Market Committee (FOMC), which is expected to include a 0.25% hike to the benchmark rate.

What’s coming up?

There’s plenty of UK data on the calendar today to keep the pound volatile.

The UK docket includes the claimant count and jobless change rate data for February, the ILO unemployment rate and the employment change figure for the three months to January, as well as public sector borrowing reports for February and CBI trends figures for March.

While all of that data will be influential, markets are likely to focus on average weekly earnings figures for the three months on the year to January, released at the same time as the bulk of today’s UK ecostats.

With inflation weakening, this means that the decline in real pay will start to slow – unless wage growth also weakens.

Consistent or accelerating pay growth would improve the outlook for the UK’s consumer-driven economy.
With no Eurozone data on the calendar, GBP/EUR could be left to advance as markets focus on today’s US announcements.

Similarly, the US dollar could remain soft today ahead of the latest policy announcements and news conference with Federal Reserve Chair Jerome Powell, both of which happen after the London trading session has ended.