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Pound Softer after Inflation Falls, US Dollar Boosted, Euro Fluctuates

Published: 17 Jun at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Germany, Japan, South Africa,

Pound Sterling GBP/USD
While the Pound is retaining much of the strength derived from recent rate-hike speculation, the British asset did slide slightly against the US Dollar and trim its daily advance against the Euro to 0.14 per cent after the publication of below-forecast UK consumer price inflation figures. The CPI report showed that inflation dropped to an over four year low in May thanks to a slide in transport and produce related costs. The result gives the Bank of England greater scope to leave interest rates on hold and saw economist Howard Archer note; ‘Given the spare capacity in the economy and the prolonged squeeze on consumers’ purchasing power, the pricing power of retailers, manufacturers and services companies will likely remain limited for some time to come.’

The US Dollar was able to edge up against the Pound, snapping the British asset’s four-day run of gains, after the UK’s consumer price index was published. Further ‘Greenback’ gains were enabled by the USA’s own inflation figures, which showed that consumer prices accelerated by more than anticipated and drew closer to the Federal Reserve’s target. Reports like this add to the argument in favour of the world’s largest economy hiking borrowing costs and the US Dollar climbed accordingly. Separate US figures revealed that the level of housing starts in the nation exceeded a pace of 1 million for the second month running. With the Federal Open Market Committee due to deliver its rate decision tomorrow, further US Dollar movement is likely.

While the ZEW economic sentiment survey for the Eurozone as a whole was 3.2 points higher in May than in June, the economic sentiment gauge for Germany defied expectations for a reading of 35.0 by sliding from 33.1 to 29.8. The result was reflective of ongoing concerns regarding slowing German growth. The data prompted this response from economist David Milleker; ‘Germany is basically doing alright. Perhaps, after a spectacular first quarter, it is now in a cool-down period.’ Tomorrow’s construction output data for the Eurozone could have an impact on the Euro’s exchange rate.

Australian Dollar AUD/USD
The resilience of the ‘Aussie’ has taken some investors by surprise over the last few days and the South Pacific asset finally stumbled on Tuesday. The release of comparatively pessimistic minutes from the latest Reserve Bank of Australia policy meeting dragged the Australian Dollar lower against several of its most-traded currency counterparts. The RBA asserted that it is hard to be certain of whether keeping interest rates low would offset the adverse impact of a decline in domestic mining investment. It is now believed by the majority of economists that the RBA will leave rates on hold for the rest of the year.

New Zealand Dollar NZD/USD
While a lack of significant economic data for New Zealand restrained ‘Kiwi’ movement overnight, the appeal of the South Pacific currency was a little dented by the news that the level of foreign direct investment in China slid by 6.7 per cent in May, year-on-year. With New Zealand’s current account figures due out later today the ‘Kiwi’ may fluctuate against rivals like the Pound and US Dollar.

Canadian Dollar CAD/USD
A lack of economic news for Canada limited the ‘Loonie’s performance on Tuesday, although shifting commodity prices did have some impact on the asset. While today’s US CPI figures helped the US Dollar advance on the Canadian Dollar, if tomorrow’s domestic wholesale sales report prints positively the ‘Loonie’ could pare its losses.

Japanese Yen USD/JPY
As the minutes from the Bank of Japan’s latest policy meeting are due out at 00:50 GMT some Yen movement can be expected. If the central bank hints at the prospect of further stimulus measures being deployed this year, a plunge in the Yen’s exchange rate could be on the cards.

South African Rand USD/ZAR
The Rand began the week suffering as the news that one of the world’s top credit ratings agencies downgraded South Africa weighed heavily on the currency. Although SA President Jacob Zuma attempted to instil confidence in South Africa’s future economic performance, the Rand is likely to trend lower until the prolonged mining strike is resolved.
As of Tuesday, 17th June 2014, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.2519, GBP USD exchange rate was 1.696, GBP AUD exchange rate was 1.8163, GBP NZD exchange rate was 1.9593, GBP CAD exchange rate was 1.8422, GBP CNY exchange rate was 10.5603, GBP JPY exchange rate was 173.2922, and GBP ZAR exchange rate was 18.3768.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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