Sterling falls after weaker than expected inflation

The pound fell 0.3 per cent. — Reuters pic
The pound fell 0.3 per cent. — Reuters pic

LONDON, Sept 18 — Sterling fell today after British prices in August grew at a their slowest pace since late 2016, while concerns about whether a last-minute Brexit deal was achievable also weighed on the currency.

Prices of goods and services paid by consumers rose at an annual rate of 1.7 per cent in August after a 2.1 per cent increase in July, official data showed. A Reuters poll of economists had expected a rate of 1.9 per cent.

The lower-than-forecast rate will be a welcome boost for British consumers and comes ahead of the Bank of England’s monetary policy meeting on Thursday. The BoE targets a 2 per cent inflation rate.

“While the data will likely cause a knee-jerk sell-off in sterling and stoke some volatility, market focus and long-term direction will continue to be driven by parliamentary and Brexit developments,” said Sam Cooper at Silicon Valley Bank.

The pound fell 0.3 per cent to US$1.2457 (RM5.21) from trading around US$1.2480 before the inflation data was released.

That followed a rally to a six-week high yesterday of US$1.2528 on the back of optimism that Prime Minister Boris Johnson was trying to secure a Brexit deal with the European Union before the Oct. 31 deadline.

“The pound continues to benefit from building optimism over the potential for a last-minute Brexit deal and more likely a short Article 50 extension which have both helped ease more immediate no-deal Brexit risks,” MUFG analysts said in a research note sent to clients.

Investors have been reassured by British lawmakers voting to block a no-deal Brexit on Oct. 31, helping sterling to rally strongly over the past week. But there was some caution on Wednesday as European Commission President Jean-Claude Juncker said the risk of a no-deal divorce was “very real”.

Against the euro sterling was unchanged at 88.585 pence .

The BoE is expected to keep interest rates at 0.75 per cent tomorrow when it meets. Policymakers have said rates could rise or fall in the event of a no-deal Brexit.

The Financial Times reported that the appointment of Governor Mark Carney’s successor was set to be pushed back until after a forthcoming election, which Johnson wants to call. — Reuters

Related Articles