Pound Slides on Surprise UK Inflation Dip
Sterling suffered steep losses versus the majors yesterday as UK inflation came in significantly lower than traders had anticipated.
The consumer price index slowed in June for the first time since last October, dropping from 2.9% to 2.6%. Cooling recreational goods prices and sliding transport costs drove the headline inflation rate lower at a time when markets were primed for it to remain at a four-year high of 2.9%.
The Pound instantly plummeted following the release as investors reined-in bets of a near-term interest rate hike from the Bank of England.
GBP/EUR Loses Over a Cent on Receding BoE Rate Hike Bets
The Pound to Euro exchange rate depreciated by over a cent yesterday as traders bet that softer inflation would prevent any further policymakers at the Bank of England from voting for higher interest rates anytime soon.
The market consensus prior to the surprise drop in price pressures suggested that the BoE would vote 5-3 against tightening policy in August, and following yesterday’s CPI print there is little reason to suggest that an interest rate hike is imminent.
The only significant European data release of the day showed that economic sentiment in Germany dipped from 18.6 to 17.5 this month. Although the reading was lower than economists forecast it had little bearing on the single currency as the sentiment print found itself in the shadow of the UK CPI report.
GBP/USD Slides But ‘Greenback’ Hurt by Trump Policy Setback
‘Cable’ lost a little bit of ground yesterday, declining by around -20 pips due to reduced BoE interest rate hike bets following the slide in UK inflation.
However, the US Dollar was unable to really take advantage of the Sterling blip because American sentiment was damaged by another political roadblock.
President Donald Trump’s attempt to repeal the Obamacare health bill ran into trouble when two Republican senators revealed they would not be supporting Trump’s proposal.
The news weighed on the ‘Greenback’ as it was seen to further undermine Trump’s ability to push through his market-boosting tax reform and infrastructure spending policies.
Pound to Canadian Dollar Exchange Rate Loses Half a Cent
The Pound to Canadian Dollar exchange rate slumped to a daily defeat of around half a cent yesterday as traders around the globe sold Sterling following the morning’s surprise dip in UK inflation.
Oil prices were given a slight boost by rumours that Saudi Arabia is planning another production cut in order to jawbone the market higher. It is believed that Saudi officials are considering cutting crude exports by a further 1 million barrels per day, however, some analysts believe that rising US shale production will plug the gap and prevent the cut from having a positive impact on oil prices.
Pound to Australian Dollar Exchange Rate Plunges 3 Cents to 3-Month Low
Sterling plunged almost three cents to strike a new three-month low versus the Australian Dollar yesterday as markets reacted to the latest minutes report from the Reserve Bank of Australia.
The RBA noted that neutral interest rates should rest around the 3.50% level, significantly higher than the current rate of 1.50%. The ‘Aussie’ Dollar surged following the remarks, which were interpreted as a warning to borrowers that policy will start to be tightened soon.
Pound to New Zealand Dollar Fluctuates Following Downbeat NZ CPI Print
The Pound to New Zealand Dollar exchange rate depreciated by around a cent yesterday.
The ‘Kiwi’ initially suffered as markets reacted negatively to a surprise dip in domestic price pressures, with New Zealand CPI falling from 2.2% to 1.7%. However, demand for the Antipodean currency rebounded later on as UK inflation also undershot and dairy prices rose at auction. Dairy is New Zealand’s most-lucrative export, meaning economic sentiment was bolstered by the 0.2% rise in prices.
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