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Pound stalls as drop in UK inflation fuels BoE rate cut speculation

currency-newsPound stalls as drop in UK inflation fuels BoE rate cut speculation
The pound was undermined on Wednesday as weak UK inflation figures fuelled further speculation of an interest rate cut from the Bank of England (BoE) this month.

Sterling remains mostly flat so far this morning, with GBP/EUR muted at €1.1682, GBP/USD subdued at $1.3028, and both GBP/CAD and GBP/AUD holding steady at C$1.6997 and AU$1.8864 respectively. GBP/NZD has retreated to NZ$1.9630.

Looking ahead, the latest US retail sales figures will be in the spotlight today, potentially lending support to the US dollar if sales growth rises in line with expectations.

What’s been happening?

The pound was mostly rangebound mid-week as markets responded to the UK’s consumer price index.

According to data published by the Office for National Statistics (ONS), domestic inflation slowed from 1.5% to a three-year low of 1.3% in December.

Coupled with some dovish comments from the BoE’s Michael Saunders, this propelled the odds of a January rate cut to 60%.

Meanwhile, the euro edged higher yesterday despite Germany’s full year GDP confirming a sharp slowing of growth last year.

Destatis reported Germany’s economy only expanded by 0.6% in 2019, down from 1.5% in 2018 and the worst pace of expansion since 2013.

At the same time, the US dollar faced some broad losses on Wednesday as the US and China finally signed their ‘phase one’ trade deal.

While the deal was welcomed by markets it failed to offer much support to the ‘greenback’ amid concerns it doesn’t go far enough.

What’s coming up?

Looking ahead, the US dollar may enjoy some modest gains today with the release of the latest US retail sales figures.

Economists forecast that sales growth will have ticked up from 0.2% to 0.3% in December, potentially buoying USD exchange rates.

For EUR investors the spotlight today will be on the European Central Bank (ECB), with the publication of the minutes from the bank’s December policy meeting and a speech by ECB President Christine Lagarde both on the agenda.

In the absence of any notable UK economic data, the focus for GBP investors may remain on the BoE, likely limiting any upside in the pound as rate cut speculation continues to run rampant.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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