British Pound (GBP) Exchange Rate Falls against the Euro After Inflation Report
Yesterday a bout of profit taking weakened the British Pound, but the currency was still trading close to a 16-month high against the Euro.
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However, Sterling later slumped as investors reacted to slightly disappointing UK data.
Investors had expected the UK unemployment rate to ease to a five-year low of 6.8 per cent in the three months to March, so the fact that joblessness did decline had little additional impact on the Pound.
Although the UK economy added more positions then expected in the three months to March (283,000 versus expectations for a 248,000 increase) the number of people filing for unemployment benefit didn’t drop by as much as hoped for in April.
Additionally, average weekly earnings climbed by 1.7 per cent in March, month-on-month, rather than the 2.1 per cent expected.
The Pound consolidated and extended losses later in European trading as the Bank of England published its inflation report.
While the BoE trimmed its unemployment forecast, it left growth and inflation projections unaltered.
The central bank also stressed the necessity of keeping interest rates at record lows for the foreseeable future.
Mark Carney, Governor of the Bank of England, stated; ‘The exact timing of the first adjustment of bank rate will be a product of the evolution of the economy. Today’s not the day. There’s additional wasteful spare capacity that can be used up.’
Given the run of upbeat UK economic data published in recent months, some industry experts had expected the BoE to adopt a more hawkish tone.
Disappointment saw the Pound ease lower against the majority of its currency counterparts.
The asset was also affected as the BoE intimated that near-term inflation may slow more than anticipated due to the strength of the Pound impacting price growth.
With no further UK reports due out this week, Sterling may hold declines into the weekend.
Movement in the GBP/USD pairing was little affected by the news that US MBA mortgage applications increased by 3.6 per cent in the week ending May 9th.
Tomorrow volatility in the GBP/EUR pairing may be inspired by German growth data and the final consumer price inflation figures for the Eurozone.
US inflation data will be responsible for GBP/USD fluctuations.
The British Pound is currently trading against the Euro in the region of 1.2229 and trading against the US Dollar in the region of 1.6766.