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Forex: Sterling lower on weaker inflation data

Sterling initially recovered the initial losses seen on the back of weaker than expected inflation data, but is now down to the 1.49 level as some residual dollar strength comes through. This showed the headline rate falling to zero in YoY terms, with the core rate falling to 1.2%, from 1.4% in the previous month. The latter number is important because it has been rising over the previous two months, so this has now been unwound and undermines, to a degree, the notion that the inflation we are seeing is all of the good kind, so falling prices in essential goods that free up income to spend elsewhere. Notionally, sterling continues to sit in-between the dynamics of the US (preparing for tightening) and the Eurozone (undertaking QE), which is why we are seeing cable under pressure, but EURGBP more stable.

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