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Sterling (GBP) Demand Limited since UK Inflation Report

Published: 21 Aug at 3 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany,

Pound Sterling (GBP)

Last week’s UK Consumer Price Index (CPI) results from July continue to keep pressure on the Pound and leave the current unappealing. The report indicated that British inflation was slowing faster than expected, meaning pressure for the Bank of England (BoE) to tighten UK monetary policy was diminishing.

With the BoE now likely to leave interest rates frozen at their loosest levels on record, the Pound has been unappealing to investors.

Recent UK data has failed to give Sterling a consistent boost. While job data beat expectations, retail sales were mixed indicating that UK consumers are being affected by the pay squeeze.

Euro (EUR)

The Pound to Euro exchange rate trended flatly on Monday. Sterling lacked the appeal to recover from near its worst 2017 levels, while the Euro held its ground due to an optimistic report from Bundesbank.

Bundesbank’s latest monthly report forecast that Germany’s economy is likely to continue seeing strong growth and could even see overall better-than-expected 2017 growth.

Germany’s strong economic outlook has been seen as good for Eurozone political stability too, as the German federal election will be held next month and Chancellor Angela Merkel looks to lead polls once again.

US Dollar (USD)

The Pound to US Dollar exchange rate tumbled last week, but the pair has held above its worst levels due to US Dollar weakness.

Amid more staff shakeups and controversy in the White House, investors are increasingly doubtful that US President Donald Trump will be able to push through key tax or infrastructure legislation.

On top of political concerns, the US Dollar is being held back by low Federal Reserve interest rate hike bets. Currently, bets that the Fed will keep interest rates frozen until 2018 are over 55%.

The US Chicago Fed national activity index slipped -0.01 in July, following the June figure of 0.16.

Fed rate hike bets could be altered if Fed officials make any surprising comments during this week’s highly anticipated Monetary Policy Symposium at Jackson Hole, Wyoming.

Australian Dollar (AUD)

The Pound to Australian Dollar exchange rate currently trends near its worst levels in months after a big drop last week. Sterling remains weak due to Brexit concerns and UK data, while the Australian Dollar became more appealing due to rising demand for risk-correlated currencies.

With the US Dollar seeing persistent weakness and commodity prices strong, the risky ‘Aussie’ has been in favour again. Prices of iron ore, Australia’s most lucrative commodity, have recently hit their highest levels since April.

New Zealand Dollar (NZD)

The Pound to New Zealand Dollar exchange rate has tumbled, similarly to GBP/AUD, due to a surge in demand for risk-correlated currencies.

Investors have preferred the Australian Dollar to the New Zealand Dollar, as the latest dairy commodity news has disappointed investors of the dairy-correlated ‘Kiwi’.

Canadian Dollar (CAD)

The Pound to Canadian Dollar exchange rate dropped during most of last week’s sessions, as risk-sentiment rose and the Canadian Dollar was supported by domestic data.

Canada’s July Consumer Price Index (CPI) results missed forecasts month-on-month, but hit 1.2% year-on-year as expected. While the report was slightly disappointing, it overall indicated that Canadian inflation was seeing increased pressure and was unlikely to fall lower in the coming months – as the Bank of Canada (BOC) forecast.
As of Monday, 21st August 2017, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.092, GBP USD exchange rate was 1.2895, GBP AUD exchange rate was 1.6246, GBP NZD exchange rate was 1.7603, and GBP CAD exchange rate was 1.62.
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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