The pound fell against the euro yesterday but continued to make gains against the US dollar in a volatile market.
Initially, the pound was boosted by much higher than expected inflation figures which led to increased speculation that the Bank of England’s Monetary Policy Committee (MPC) may be forced into a sooner than expected increase in UK interest rates. Annual consumer price inflation (CPI), the government’s preferred measure, rose to 3.7% on an annualised basis in December as soaring commodity costs pushed up prices.
The latest figures mean that Bank of England governor Mervyn King will have to pen another letter to chancellor George Osborne to explain why CPI remains above the 2% target set by the government for the 10th month in a row!
The Royal Institution of Chartered Surveyors’ (Rics) reported that UK house prices fell again in November, demonstrating continuing weakness in the market and a second consecutive fall of 0.1% from the previous month.
Today sees the publication of UK unemployment data could well be the catalyst for further pound losses against the euro as economic conditions worsen in the UK.
The euro more than regained the morning losses against the pound as it continued to find support over the past couple of days as Russia joined the ranks of China and Japan in pledging to buy new bonds in the European Financial Stability Fund (EFSF). Together with the successful completion of two peripheral debt auctions of Spanish and Greek debt yesterday the euro is now close to a two month high against the US dollar.
The US dollar continues to slide as decidedly mixed economic data out of the US together with an increase in risk appetite pushed the dollar lower against the euro, yen and the pound following an extended weekend break in the US.
Commentary by Tony Redondo, Senior Trader at Torfx.
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
