Tuesday, 18 July 2017

Pound falls on inflation figures

We've just seen the latest UK inflation figures, and they came in lower than expected, sending the Pound lower against both the Euro and US Dollar. Why did the Pound fall? It's due to the lower inflation numbers taking pressure off the Bank of England to raise interest rates. Their next meeting is on the 3rd of August, and this morning figures mean it's now highly unlikely that more than 1 or 2 of the MPC members will vote for a rate hike.

Lower interest rates for longer weakens a currency due to the low return on offer, and that is now reflected in the value of Sterling, which is now at €1.13 vs the Euro and $1.30 vs the US Dollar, as you can see from the charts below.

     GBP/EUR
   
   GBP/USD

What next for the Pound?


Later this morning we have Economic sentiment measures from Europe that could further affect GBP/EUR rates if the numbers come in above or below forecast. The next main UK Release of note is Thursdays Retail Sales figures which are a good barometer of how the economy is performing. Consumers have continued to spend despite the economic uncertainty, but borrowing has also gone up, indicating consumers are simply continuing to spend but are doing so with their credit cards, which can't be sustained forever.  Also of importance this week are what indications may come from Brussels with regards to how the second round of Brexit negotiations are going.

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