Pound falls as price levels cool

The pound has just dropped following the latest UK inflation figures.

The data showed that prices didn’t increase in June from the previous month and increased 0.2% less on the year than expectated. This has reduced the odds of a BoE rate hike next month which in turn reduces the appeal of Sterling. Although the markets are still currently pricing in a hike next month, the odds have dropped to around 69% versus 80% leading into today’s data. Certainly even if the BoE do hike, then it looks like it will be a one-and-done case and therefore not the start of a series of rate hikes (which is where a currency can make some serious gains).

The pound received a temporary boost yesterday from robust employment and wage figures, however, the political uncertainty surrounding Brexit and Theresa May’s fragile grip on power have weighed heavily on the Pound. Mrs May narrowly survived crucial votes on her Brexit proposals yesterday which highlighted how deep the divisions within her party are and how her authority as leader is being challenged.

The USD also made some strong gains yesterday after the Fed Chairman made bullish comments about the state of the US economy. This, together with today’s soggy UK data, has pushed the GBP/USD down over 2-cents from yesterday sinking it to a 10-mth low. The GBP/EUR has also knocked down to a 4-mth low after falling one cent.  The momentum is clearly not with Sterling at the moment and it is close to dropping through some big support levels.

Next up we have retail sales figures tomorrow morning. Will this provide a bit of a lifeline to Sterling or cause it more pain? Certainly Theresa May will be happy for Parliament’s summer recess to start next week!

Big week for Sterling as data looms

Sterling has a big week ahead with numerous key data releases out and ongoing Brexit debate.

The key data releases this week are wages/jobs (Tues), inflation (Weds), and retail sales (Thurs). This is the last major batch of data the Bank of England will see before they make their next interest rate decision on 2nd August. At the moment the market are pricing in around a 70% chance of a 0.25% hike, however, these expectations could shift dramatically either way depending on how these numbers come in.

Data coming out of the UK in the second quarter has improved after the cold weather played a large role in hampering first quarter growth. However, even with expectations increasing dramatically for an August rate hike, the Pound hasn’t managed to make much ground back as Brexit and the UK political situation remains in turmoil.

Theresa May has been trying to deal with high profile cabinet resignations and a potential threat to her leadership. Seemingly her new Brexit proposals (essentially looking like a watered down version of Brexit) don’t satisfy either the Remainers or Brexiteers within her government and this increases the risks of an early election which would hurt the Pound.

The rates have been fairly contained over the past couple of weeks. The GBP/EUR is currently trading around the upper end of it’s 2-week range. The GBP/USD has recovered over 1% since Friday’s low but still trades at relatively low levels.