Sterling Stalls Ahead Of Inflation

By Simon Eastman

Yesterday was a day of no data for the UK or EU and the Pound was up and down over the trading day.

We saw an initial dip when the markets opened in Europe at 8am which reversed completely as the UK markets opened, with sterling spending the morning making back losses from overnight back to its comfort zone, hovering in the middle of its current range against the single currency. Its peak at lunchtime lasted most of the afternoon until the European markets closed and the US markets took over at 4pm. Against the US dollar, the rates stayed in a half cent range all day, again until the markets closed here, and the US took over.

Data for the day included a mixed bag of US retail sales, which showed month on month figure lower than the forecast, whilst overall retail sales for the month was far better than expected, coming in a 0.6 percent, compared to a negative 0.3 percent. Industrial production or June was also lower than expected at negative 0.5 percent rather than a flat 0 percent expected.

Canada had its consumer price index figures with both monthly and yearly figures all under forecast. Industrial production and raw material price index also missed the mark, but with little negative effect for the Loonie. It went on to make a near 1 percent gain as the day moved on surprisingly, showing how sterling having been showing signs of buoyancy recently, is still in a fragile state.

As the US market took over, we have seen the pound drop further against the single currency and US dollar, as the markets see renewed dollar strength following their mixed results ahead of UK inflation which is weighing heavily on the pound as the key driver behind the Bank of England and their future monetary policy.

As the trading day starts today, we have already had inflation results which show a fall in the expected levels of 8.2 percent, down at 7.9 percent. Core inflation also dropped from expected 7.1 percent to 6.9 percent in the consumer price index. We have also seen retail sales released which have come out lower than forecast at 0.3 percent for the month opposed to expected 0.4 percent. The result being a sharp fall for sterling across the board.

Still to come is the EU index of consumer prices for the month and year, before we head Stateside for building permits and housing starts figures, giving an insight into the US housing market. We round off the day with a speech from the Bank of England member Ramsden, no doubt commenting on the Bank’s view for further policy following the inflation report.

So with the pound on the back foot again, anyone with a currency requirement might be prudent to get in touch with one of the team today to discuss your options, be it trading right away on a spot contract or locking in the rate on a forward contract. Give the team a call for some friendly guidance.