CPI Stays above Target, Sterling Declines against Euro

As a report came out showing that consumer price inflation stayed above target of the Bank of England, the major currency of United Kingdom, went down to a 1-month low figure against Euro. Not only against Euro, but Pound declined against most of its major counterparts as well. Apart from that, for the first time in last 4 days, Government bonds of United Kingdom tumbled. According to the officials of Amundi, Pound is expected to stay under pressure as inflation has exceeded the interest rates, thereby dampening returns on the UK assets. Incidentally, in March, the lawmakers of the country eased the remit of the Bank of England so that it can be given a greater flexibility to add stimulus, even if the inflation is over the target of 2%.

According to the Currency Strategist of Bank of Tokyo Mitsubishi UFJ Ltd., Lee Hardman, the current fundamental outlook for Pound is still weak. It is expected that the Bank of England will be loosening the monetary policy further in an attempt to support growth, despite of the inflationary pressure. Currently, a rebound in Pound will be touted as an opportunity to establish a new short position. Incidentally, a short position is a bet that the asset will get down.

Pound experienced a decline of 0.8% on today and the same is now at 85.93 Pence per Euro. At one point of time on today, Pound declined to 86.02 Pence per Euro, marking its weakest level since 15th March. Against USD, Pound went ahead by 0.3% and it is currently priced at $1.5327.

The annual inflation for last month was unchanged at 2.8%, as reports published by the Office for National Statistics. If core inflation is considered (It excludes prices of products such as energy, food, tobacco, alcohol etc.), it went ahead by 2.4% from its value of 2.3% in February. On the other hand, the Retail Prices Index which is used as basis for the inflation linked bond market was at 3.3%, higher than its previous value of 3.2%. The 10-year UK gilts went ahead by 3 basis points to 1.73%.

Sterling has been the 2nd worst performing major currency in 2013, positioning itself only after Yen. It has declined by 4.5% in 2013. On the other hand, USD has gone ahead by 1.9%, whereas; increase for Euro is of 1.8%.

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