Falling UK inflation sends GBP exchange rates lower

A surprising result from the UK’s latest inflation report left the pound tumbling against the majors on Tuesday.

GBP/EUR dropped from €1.1381 to €1.1239, GBP/USD stumbled from $1.3119 to $1.3009, GBP/AUD slid to a three-month low of AU$1.6395 from AU$1.6580, GBP/NZD edged down from NZ$1.7839 to N$1.7662 and GBP/CAD eased from C$1.6606 to C$1.6378.

Can the pound bounce back from lows? Keep scrolling to find out…

What’s been happening?

Yesterday’s UK consumer price index was expected to show that the rate of inflation remained at a four-year high of 2.9%.

However, consumer price pressures actually eased for the first time since late last year, with the annual inflation rate dipping to 2.6%.

As the result was seen to reduce the odds of the Bank of England (BoE) making any moves on interest rates for the foreseeable future, the news sent the pound spiralling lower across the board.

Despite this blip, some forecasters believe that inflation will remain a thorny issue for the BoE over the rest of 2017.

According to Lloyds Bank; ‘The fall in June inflation now leaves inflation for Q2 as a whole at 2.7%, broadly in line with the Bank of England’s forecast of 2.65% made in the May Inflation Report. In line with the Bank of England, we still see risks that the upward push from some residual sterling weakness will continue to impart some upward pressure on inflation.’

Sterling slumped against the euro and extended losses against the Australian dollar. With the Reserve Bank of Australia (RBA) meeting minutes indicating that the central bank is considering tightening policy, the UK CPI report was enough to drive GBP/AUD to multi-month lows.

The pound’s losses against the US dollar were limited however, as renewed concerns about President Donald Trump’s ability to implement planned spending and tax reforms left USD struggling.

What's coming up?

UK news is in short supply today, and the only data on the calendar for the Eurozone is the region’s construction output report.

While an uptick in construction output could prevent the pound from recovering recent losses against the euro, investors will also be looking ahead to tomorrow’s UK retail sales figures.

Consumer spending is expected to rebound in June after slumping in May. If estimations prove accurate the data could give the pound a lift at the tail end of the week.

Ahead of the sales stats, the main cause of GBP/USD exchange rate movement is likely to be the nation’s housing starts and building permits figures. Impressive housing data could send the pound back to the cusp of $1.30.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.