Pound Slumps as Dollar Strengthens on U.S. Inflation Data


The British Pound Sterling dropped towards $1.38 on Wednesday, February 14, as the dollar firmed up after data showed U.S. consumer prices rose more than expected in January, strengthening bets the Federal Reserve would need to raise interest rates faster.

The GBP had earlier traded at a five-week low against the euro before a speech on Brexit by Boris Johnson, Britain’s foreign minister and a prominent supporter of the campaign to leave the European Union.

Sterling rose towards $1.39 following the speech. But after the U.S. inflation data, which showed a measure of underlying inflation posting its biggest gain in a year, sterling skidded again, falling more than half a percent on the day to $1.3801.

But investors said Johnson’s speech did not deliver any major surprises or bad news, and the pound had recovered its earlier losses after the speech was made.

In the first of a series of Brexit speeches by government ministers, Johnson said the benefits of being in the EU’s single market and customs union were “nothing like as conspicuous or irrefutable” as their supporters argue.

Business leaders said the speech failed to spell out any details on Britain’s future relationship with the 27-nation EU, by far its biggest trade partner.

“It was a bit on the soft side, and maybe that’s why we didn’t go any further (down) with the pound,” said Neil Jones, Mizuho’s head of hedge fund currency sales. “The market was potentially expecting something a little tougher, and I didn’t see a hard-line Brexit stance.”

Sterling had strengthened on Tuesday after data showed British inflation unexpectedly stayed near its six-year high in January, firming up investors’ bets that the Bank of England will raise interest rates again in May.

The BoE surprised financial markets last week by indicating that rates could move up faster than previously expected, as the Bank wanted to bring inflation back to its target of two percent within two years rather than three.

In a Reuters poll taken after the BoE’s policy meeting last week, 32 of 57 economists said the Bank would raise its key rate to 0.75 percent in May, when it publishes its next quarterly Inflation Report.

In a January poll, only 13 of 71 economists had a rate hike in their forecasts for next quarter.




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