Pound nosedives as UK inflation figures dent BoE rate speculation

The pound plummeted during Wednesday’s trading session as some worse-than-expected inflation figures weighed heavily on market sentiment.

Sterling remains subdued this morning following yesterday’s decline. GBP/EUR is unchanged at €1.1476, GBP/USD is muted at US$1.4213. GBP/AUD and GBP/NZD are both at holding steady at AU$1.8215 and NZ$1.9400 respectively, with GBP/CAD unmoved at C$1.7922.

The UK will publish its latest retail sales figures later this morning, with the pound likely to slump again if they are as gloomy as expected…

What’s been happening?

The pound experienced a sharp sell-off on Wednesday as the UK’s latest consumer price index printed below expectations.

The data revealed UK price growth slowed in March as the headline inflation slid from 2.7% to a one year low of 2.5%.

While the unexpected decline in inflation is not seen as preventing the Bank of England (BoE) from still targeting a rate hike next month, it is suggested that a second hike later in the year will now be ruled out.

Not even the Eurozone’s own disappointing inflation reading could offset the downturn in GBP/EUR yesterday as the pairing slumped over half a cent on Wednesday, despite the bloc’s inflation only rising to 1.3% in March against initial forecasts it would strike 1.4%.

The GBP/USD exchange rate posted some considerable losses on Thursday as easing concerns over a potential trade war between the US and China helped the US dollar to exploit the weakness in Sterling sentiment to punch higher.

What’s coming up?

The pound may be forced to relinquish even more ground today as the UK publishes its latest retail sales figures.

Economists expect today’s data will reveal sales growth fell sharply last month as the cold weather and snow caused many shoppers to avoid the high street.

A lull in Eurozone data may grant the GBP/EUR exchange rate some respite today, with the euro possibly retreating late in the session if remarks by the European Central Bank’s (ECB) Ignazio Angeloni are construed as dovish by investors.

Meanwhile the focus for USD investors will continue to be on the Fed as another set of speeches by policymakers will occur later today, with the GBP/USD exchange rate likely to tumble if they appear receptive to the possibility of raising US interest rates three more times this year.