Pound exchange rates muted as UK inflation drops to two-year low.

Philip McHugh February 14th 2019 - 2 minute read

The pound traded in a narrow range yesterday as markets reacted to the UK’s latest inflation figures.
Sterling is on the defensive this morning however, with GBP/EUR muted at €1.1393, GBP/USD subdued at $1.2827 and GBP/CAD dipping to C$1.7002, while GBP/AUD and GBP/NZD both push lower, striking AU$1.8047 and NZ$1.8795 respectively.

In focus today will likely be the latest House of Commons Brexit debate, which could see some volatility in the pound depending on any amendments that may be tabled by MPs.

What’s been happening?

The pound remained rangebound against the majority of its peers on Wednesday as markets digested the UK’s latest inflation figures.

According to data published by the Office for National Statistics, UK inflation tumbled from 2.1% to 1.8% in January, marking the first time that it has fallen below the Bank of England’s 2% target in two-years.

While this further dampened the case for the bank to raise interest rates this year, the drop in inflation also meant that real wages continued to rise last month, limiting any losses in Sterling.

The GBP/EUR exchange rate was still able to accelerate yesterday however as a larger-than-expected contraction in Eurozone industrial production in December prompted the euro to retreat.

Meanwhile, the GBP/USD exchange rate remained flat on Wednesday as the US published its own CPI figures, with another sizable drop in inflation strengthening the case for the Federal Reserve to leave rates on hold this year.

What’s coming up?

Looking ahead, Brexit may be back in the spotlight today as Parliament debates a motion to affirm ‘the approach to leaving the EU’ that was backed at the end of January.

However, MPs may take this opportunity to voice their concerns that Theresa May is ‘running down the clock’, potentially tabling amendments that could frustrate her attempts to push through a Brexit deal.

Meanwhile, the publication of Germany’s fourth quarter GDP figures may leave the euro under pressure today, after the Eurozone’s largest economy managed to avoid a recession but ultimately stagnated at the end of 2018.

Finally, the US dollar may find some support later this afternoon as the US publishes its delayed retail sales figures for December, with economists forecasting that sales growth may have edged higher again at the end of 2018.

Written by
Philip McHugh

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