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!