Update: UK CPI Misses Forecasts, Pound Sterling Exchange Rates Slide
Pound Sterling (GBP) exchange rates broadly softened on Tuesday as the UK’s latest inflation report came in below forecasts.
The UK’s Consumer Price Index had been expected to rise to a new five-year high of 3.1% in October, but it held at 3.0%. Core inflation also remained at 2.7% instead of rising to 2.8% as anticipated.
As the results support the Bank of England’s (BoE) plan to leave rates on hold for the foreseeable future, the Pound posted significant losses against currencies like the Euro, US Dollar and Australian Dollar.
James Smith of ING said of the inflation report; ‘Over coming months, we expect headline CPI to trend lower, reaching the 2.3⁄2.4 per cent area by Easter time.
As the currency effect starts to peter out, the question is whether domestically-generated price pressures start to take over.’
Update: Pound Sterling Rallies as MP’s Appear Reluctant to Issue Formal Leadership Challenge
After plummeting this morning, the Pound was able to recoup some of its losses by the end of the session as some of the pressure on Theresa May appeared to recede by mid-afternoon.
Some observers suggested that rebel MP’s may be reluctant to pull the trigger on a supposed leadership challenge given Labour’s recent strength in the polls and fears it could escalate into a general election.
If anything today’s slump has again underscored Sterling’s vulnerability to political uncertainty and how it could be in for further losses this week if the government’s Brexit bill is obstructed.
Update: GBP Exchange Rates Retreat as Prime Minister Theresa May Faces Possible Leadership Challenge
The Pound tumbled against the majority of its peers this morning as the currency came under pressure following reports that a number of Conservative MPs are preparing to mount a leadership challenge against the PM.
This comes as markets are becoming increasingly concerned about the state of the UK government as investors fear any further instability could negatively impact ongoing Brexit negotiations.
Something that has not been helped by comments from EU’s chief negotiator, Michel Barnier over the weekend, in which he suggested that he is preparing for the possible collapse of Brexit talks.
British Pound Exchange Rate Forecast
Pound Sterling exchange rates have rallied across the board as UK data made a positive impression.
The Pound to Euro (GBP/EUR) exchange rate rose by 25 pips but the threat of leadership contest could spook the forecast for the British currency.
Meanwhile, the Pound to US Dollar (GBP/USD) exchange rate was able to drift higher as Donald Trump’s tax reform ran into trouble.
Political jitters could limit gains for Pound Sterling exchange rates going forward, but UK CPI data could provide a bullish signal.
Pound Sterling Exchange Rates Look to UK CPI Report for Further Strength
Upbeat UK data bolstered the appeal of the Pound on Friday and we could see Sterling (GBP) exchange rates register further gains this week if UK inflation strikes new multiyear highs.
A rise in exports to the European Union helped bring Britain’s trade deficit down from -£12.4 billion in August to -£11.3 billion in September, it was reported.
The figure was better than analysts were expecting and subsequently helped boost demand for the Pound. Sterling also benefitted from a couple of sturdy production figures, with manufacturing and industrial output increasing 0.7% in September, both beating forecasts of 0.3%.
Traders cheered the robust reports, although it was noted that the UK is currently enjoying a so-called ‘goldilocks’ period of a Brexit-weakened currency boosting exports while Britain still retains tariff-free access to the EU’s single market. This suggests UK trade could suffer if a positive new UK-EU trading relationship is not secured.
Pound to Euro Exchange Rate Forecast to Strengthen if UK Political Jitters Die Down
The Pound to Euro exchange rate increased in value by around a quarter of a cent on Friday, buoyed by upbeat UK manufacturing, industrial and trade figures.
Sterling could yet register further gains versus the single currency if this week’s UK CPI report rises to a new five-year high of 3.1% as expected, but only if British political concerns settle down.
Over the weekend the Sunday Times reported that 40 members of Prime Minister Theresa May’s Conservative Party have agreed to sign a letter of no-confidence. While this falls short of the 48 required to trigger an internal leadership contest, the threat of further political instability could weigh on the Pound over the coming weeks.
But if speculation around May’s suitability for the role dies down then investors could focus on Tuesday’s UK inflation report, which is expected to be seen as a bullish signal for Sterling.
Pound to US Dollar (GBP/USD) Exchange Rate Boosted by Delay to Trump’s Ambitious Tax Reform
The Pound to US Dollar exchange rate strengthened by around half a cent on Friday and could rise further if complications around US President Donald Trump’s ambitious tax reform lead to further delays.
The ‘Greenback’ suffered late last week as consumer confidence slumped unexpectedly, from 100.7 to 97.8, and the House of Representatives said they would like to delay Trump’s proposed tax reform until 2019.
Speculative investors initially bought into the US Dollar following Trump’s shock election victory last year due to hopes that tax cuts and infrastructure spending would boost wages, growth and inflation – therefore prompting the Federal Reserve to accelerate its hiking cycle.
However, with neither policy looking likely to be signed off anytime soon, the US Dollar could cede support if a softer inflationary outlook is seen to weigh on 2018 Fed rate expectations.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Rises on Upbeat UK Data
Sterling appreciated by around half a cent versus the Canadian Dollar on Friday following a number of sanguine UK ecostats.
In addition to sturdy production and trade numbers, demand for the Pound was bolstered by the National Institute of Economic and Social Research’s (NIESR) latest GDP estimate.
The NIESR estimated that British growth accelerated from 0.4% to 0.5% in October. However, there was not a massive reaction in terms of the Sterling to Canadian Dollar exchange rate – probably because the UK economy has seen growth slow over the last 12 months, at a time when most other developed economies have seen improvements.
Pound to Australian Dollar Exchange Rate Drifts Higher
The Pound posted gains against the Australian Dollar on Friday, boosted by better-than-anticipated UK data, however, fears that political unrest could destabilise the Brexit negotiations appeared to soften Sterling’s appeal at the start of the week.
Meanwhile, the ‘Aussie’ traded positively to comments from Reserve Bank of Australia Deputy Governor Guy Debelle suggesting that the non-mining sector of the Australian economy is rebalancing well.
Pound to New Zealand Dollar Exchange Rate Flat Due to Encouraging Data & Political Concerns
The Pound to New Zealand Dollar exchange rate held relatively steady over the weekend as UK political jitters and encouraging domestic data met to create a neutral trading bias in GBP/NZD.
Data Released Today
19:00 USD Monthly Budget Statement (OCT)