Softer inflation weakens the pound

Softer inflation weakens the pound

The pound has weakened over the last 24 hours following a drop-off in UK inflation. Data released yesterday morning confirmed CPI (consumer price index) has dropped to a two-year low on an annualised basis. Year-on-year CPI is at 4.6% vs expectations of 4.7% which means the UK government have met their target of halving inflation by year end. Admittedly, the government has had little impact on inflations course with the Bank of England in charge of monetary policy.

Last week, Andrew Bailey stated interest rates would need to stay higher for longer to bring inflation back to the banks 2% target. The latest drop-off in inflation could change the narrative of this and increase probability of an interest rate cut next year.

GBPEUR has dropped to a 6-month low making now an opportune time for euro sellers.

A transfer of £200,000 is buying €7000 less vs the high of the last 3 months in August.

The dollar has also lost value this week following an inflation easing with expectations of a US interest rate cute as early as Q2 2024.

Where next for Sterling?

Tomorrow will see the release of retail sales data where there is an expectation to see month-on-month growth of 0.3%. This could provide support to sterling’s troubles as last months reading was -0.9%. However, yearly data could paint a different picture by posting -1.5% following the last reading of -1%.

European Central Bank president Christine Lagarde will be speaking in the morning. Any suggestions of future monetary policy could cause volatility for exchange rates. Talk of higher interest rates would strengthen the euro and pile further pressure on the pound.

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