Pound slumps as UK inflation peaks

The government was angering Parliament and UK inflation data disappointed markets yesterday: all-in-all a standard day for pound Sterling.

Sterling is starting the morning on a slightly firmer footing but remains down on the week’s opening levels against several of the majors. GBP/EUR is flat at €1.1150, while GBP/USD has inched up to US$1.3171. GBP/AUD has soared 0.8% to A$1.7377, GBP/NZD has crawled to NZ$1.9150, and GBP/CAD is flat at C$1.6758.

Read on to find out why the pound weakened yesterday - in particular why MPs remain angry with the Cabinet despite having supposedly received what they were demanding.

What’s been happening?

It was a busy day yesterday. The pound slumped, partially because the political chaos surrounding Theresa May’s government continued.

Brexit Secretary David Davis caved in to pressure and offered Parliament a vote on the final Brexit deal, but Tory rebels are unlikely to be appeased by this for long. The terms of the vote are fairly similar to what Parliament was already receiving, in that a vote to reject any Brexit deal won’t force the government to go back to the table to renegotiate.

Davis additionally angered MPs after admitting that the vote could actually take place after the UK has left the EU, given that Theresa May has fixed a date for Brexit to happen and it is likely that the UK and EU will only fully agree terms at the 11th hour.

On top of this, the latest UK inflation data disappointed after both core and overall price growth remained consistent with the previous month.

This leaves inflation in undesirable territory from a market point of view: too low to force the Bank of England (BoE) to hike interest rates again, but high enough to have a significant impact upon consumer spending.

The euro, meanwhile, was on buoyant form after a run of largely positive headline data from the Eurozone. German GDP for the third quarter particularly impressed, beating forecasts all round.

It was largely business as usual for the US dollar yesterday, with USD finding some strength in the bets of monetary tightening next month, although appetite was dented by fears that the Trump administration would be delayed in implementing their ambitious tax plans.

What's coming up?

UK wage growth, jobless claims counts and unemployment figures could cause further concern today, especially if the former continues to show sluggish improvement in pay conditions.

The Eurozone data set for release today will be the trade balance figures for the currency bloc, which could leave the euro on submissive form.

The US data calendar finally wakes up today, offering headline consumer price indices and advance retail sales figures.

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.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.