Three-year low UK inflation extends pound decline

Philip McHugh December 19th 2019 - 2 minute read

  • Underwhelming inflation adds to pound weakness
  • Canadian dollar gains ground as inflation rate surges
  • Market risk appetite limits US dollar demand

Pound under pressure ahead of final 2019 BoE decision
Demand for the pound continued to weaken yesterday as November’s UK consumer price index held steady at a three-year low of 1.5%.
With the headline inflation rate still some way short of the Bank of England’s (BoE) 2% target the odds of a 2020 interest rate cut appeared to increase, to the detriment of GBP exchange rates.
Although no change in monetary policy is expected at today’s policy announcement the pound could still come under pressure if BoE policymakers signal an increased sense of dovishness.
However, political developments are likely to remain the primary driving force of GBP exchange rates in the days ahead as fears of a cliff-edge Brexit linger.
Accelerating wholesale trade sales set to fuel Canadian dollar boost
As November’s Canadian consumer price index accelerated to 2.2% on the year as forecast the mood towards the Canadian dollar improved.
Markets were reassured that this latest uptick in inflation is likely to keep the Bank of Canada (BOC) on a neutral policy bias in the months ahead.
Further gains could be in store for CAD exchange rates this afternoon if October’s monthly wholesale trade sales show a fresh increase.
Any evidence of greater confidence within the Canadian economy may see the Canadian dollar pushing higher across the board.
US dollar losses forecast on weaker manufacturing index
With market risk appetite still elevated thanks to the modest improvement in US-China trade relations support for the US dollar proved limited.
Comments from New York Fed President John Williams helped to keep USD exchange rates on a positive footing, however, as he reaffirmed the central bank’s willingness to remain on hold.
Even so, the US dollar may face renewed selling pressure today on the back of a softer Philadelphia Fed manufacturing index.
A deterioration in December’s index would add to fears that the world’s largest economy lost further momentum in the fourth quarter, exposing USD exchange rates to fresh bearishness.
Upcoming Data:
Thursday, 19th December 2019
12:00 GBP Bank of England Rate Decision
13:30 CAD Wholesale Trade Sales
13:30 USD Philadelphia Fed Manufacturing Index

Written by
Philip McHugh

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