Fall in UK inflation leads to Sterling weakness

This morning we saw the release of CPI (Inflation) data for the UK, the data showed a fall from 1.8% (Previous and expected) to 1.6%.

Now for the general public, this isn't necessarily a bad thing, with the BoE Governor highlighting last week that one of his main concerns in the UK is the lack of wage growth- a lower inflation figure wouldn't be a bad thing in light of this. However for those of you who are looking to sell the Pound to buy foreign currency, then we are now looking at the Pound on the back foot.

Over the last couple of months there has been predictions that interest rates in the UK may go up "sooner than expected" and people were predicting around November, but my personal feeling is with wage growth not increasing and inflation levels falling, I think a rate hike may be more likely in 2015 as opposed to 2014.

Over the last 2 weeks, the Sterling Dollar exchange rate has dropped from 1.72 down to 1.66 currently- which is around 4%, and this is predicted to drop even further as time goes on.

Tomorrow the main focus is the BoE minutes, nobody is expecting any whispers about a rate hike, however we may get some clarity on where they are looking to make changes in regards to the housing market and mortgage approvals etc.

The FOMC minutes tomorrow is another main focus, with the tapering in the US due to end in the next 2 months, it is expected that the USD will continue to gain strength across the board following this.

For any further analysis, please don't hesitate to contact me personally at prem.raja@currencies4you.com