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Volatile day for the pound

Arron Morris Currency Broker - Volatile day for the pound. Written by
Arron Morris
Senior Currency Broker
T: 01442 892 065

Yesterday morning saw the pound fall from its highest level for a month against the euro, with the currency pair dropping from €1.1825 to €1.1724.

However, the drop was short-lived as by the afternoon the pound had clawed back the majority of the lost ground and was back within touching distance of the 1.18 barrier, after Fed Chair Janet Yellen’s testimony in Washington helped weaken the euro.

GBP/EUR exchange rate graph

GBP/EUR exchange rate graph

Why did the pound fall?

Sterling lost ground after the UK published its latest inflation reading, with the data coming in under the predicted level, adding to a number of muted eco-stats over the past fortnight.

Figures published by the Office for National Statistics showed UK inflation had risen from 1.6% in December to 1.8% in January, but with the headline year on year reading missing economists’ predictions of 1.9% the pound lost ground across the board.

The latest reading will do little to back the calls for Mark Carney and the Bank of England to raise their benchmark interest rate from the current low of 0.25%.

Some members of the Monetary Policy Committee have publicly stated in recent weeks that they are on the verge of voting for a rate hike, but yesterday’s data may come as a bit of a reality check.

Attention has now turned to today’s wage data, and if the Average Earnings Index fails to climb as much as yesterday’s inflation reading, we could see the pound come under pressure in the next few hours.

What did Yellen say?

As I mentioned above, Fed Chair Janet Yellen’s testimony in Washington helped boost the GBP/EUR cross after her comments strengthened the dollar and weakened the euro.

Speaking in front of the Senate Banking Committee, Yellen said it may be “appropriate” for the Federal Reserve to raise interest rates at one of its upcoming meetings, and that delaying rate increases would be “unwise” as it could leave the Fed having to move too fast further down the line, and could lead to a recession.

The Feds next meeting will take place on the 14th and 15th March.

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Today’s data

There are a number of key releases from the UK that could cause some volatility for sterling crosses. As I have already mentioned we have the Average Earning Index reading which will be released at 0930, at the same time the latest Unemployment figures and Claimant Count Change numbers will also be announced.

There are no releases of any note from the Eurozone today, but the U.S. will release their inflation figures, along with the latest Retails Sales numbers and the Empire State Manufacturing Index.

Fed Chair Janet Yellen will also begin day two of her testimony in Washington.

Arron Morris
Senior Currency Broker
T: 01442 892 065

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