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British Inflation data released this morning stunned traders this morning, driving the British Pound up to $1.5730, from its pre-release price of $1.5702. The price represented a two-week high for the UK’s struggling currency, which is soon began to lose as it fell back to $1.5694. While inflation for July did massively outperform expectations, few believe that it will continue due to Bank of England policies pegging back any future increases with their monetary easing.
The Euro couldn’t keep up with the sharp rise, as it succumed to a 1p loss on the Sterling; falling from £0.7882 to £0.7872. It did however gain traction elsewhere, increasing its worth by 0.2% across the board on the back of growth data coming out of Germany and France.
Glenn Uniacke, a senior dealer at our highly recommended Moneycorp said “Any rise in sterling is likely to be fleeting at best … irrespective of July’s spike in inflation, the BoE will inevitably have to set the QE money presses rolling again”.
Had the inflation rate slowed to the 2.3% rate that was expected, rather than rising to 2.6%, the Bank of England would have had a much easier time. The central bank have long been expected to begin a fresh round of quantitative easing, a programme which essentially prints money that doesn’t exist; devaluing the currency as a whole. Today’s rise would have left few people feeling any richer as there was very little time to react to the news before the price began to drop again.
Additionally investors will look to avoid the currency this week as we all await the latest unemployment figures for the UK, the release of which coincides with the latest retail sales statistics. Last month figures were released that suggested the UK economy contracted by around 0.7%, a third quarter in a row of losses, which has continued into this quarter as preliminary data shows no real upturn.
While Mervyn King, Governor of the Bank of England, did make claims last week that a cut to the interest rates would be counterproductive many traders still feel it is a possibility, regardless of its already low 0.5%.