Yesterday’s combination of UK and US January inflation numbers pushed the pound lower against the greenback, as the pair looks increasingly vulnerable to further potential losses.
Inflation in the UK is falling. After a significant surge following the referendum result which led to a huge drop in the pound, a lack of consumer demand and a stabilisation in the currency has produced a continued fall in the cost of goods. Yesterday’s numbers, which displayed a larger than expected decrease (1.8% year on year vs. 1.9% expected), confirmed that the rate of inflation is now below the Bank’s 2% target, consequently putting less pressure on them to raise interest rates. Sterling fell after this release.
The inflation report from across the pond showed the opposite. In this instance, US inflation appears to be back on the rise. As the economy continues to perform relatively well and nearly $4 trillion of Fed printed money continues to slush around the financial system, the cost of goods and services maintain upward pressures. The release will ensure the Fed have to remain cautious when it comes to being patient on interest rates. Many investors have been perplexed at the lack of a pick-up in US inflation, has the time finally arrived?
Written by Viv Savani. 8:48am, February 14th 2019
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