British Pound (GBP) Exchange Rate Close to Six-Week Low as UK CPI Falls
Sterling suffered on Tuesday as UK data confirmed that inflation slowed to the least since 2009 in February.
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Before the report was published the GBP/EUR pairing was close to its lowest level for 2014 so far and the GBP/USD pairing was trading in the region of a six-week low.
Losses were consolidated as the figures showed that in February consumer prices advanced by 1.7 per cent on the year – the lowest annual climb for over four years and down from January’s reading of 1.9 per cent.
Consumer prices advanced by 0.5 per cent on the month following a decline of 0.6 per cent in January.
As the report supports the case for the Bank of England leaving interest rates at record lows for at least the next few months the Pound lost some of its appeal and edged lower against its major rivals.
The data prompted this response from one Capital Economics industry expert; ‘A favourable combination of lower import prices, flat commodity prices and recovering productivity is likely to help CPI inflation fall further, perhaps to about 1 per cent by the end of the year.’
Separate UK figures showed that BBA loans for house purchases fell from a negatively revised 49,341 in January to 47,550 in February while the nation’s CBI reported sales tumbled from 37 to 13 rather than falling to 28 as expected.
However, movement in the GBP/EUR pairing was also occasioned by Eurozone news, and the Euro softened in response to lower-than-expected German sentiment measures.
Meanwhile, Bank of England policy maker Martin Weale observed that while interest rates are likely to remain low over the next 2-3 years he can’t guarantee they won’t be increased. He also said that the BoE growth forecast for economic expansion of 3.4 per cent in 2014 ‘is broadly consistent with slack being used up over the next two to three years while the collective judgement of the committee was that slack would remain at the end of that period.’
This afternoon the GBP/USD pairing could extend declines if the US consumer confidence gauge shows the improvement predicted.
Tomorrow global developments will be the main cause of Pound movement, although investors will also be looking ahead to Thursday’s retail sales figures.
The Pound is currently trading against the Euro in the region of 1.1947 and trading against the US Dollar in the region of 1.6508