Pound Declines against Euro for 2nd Straight Day

For the 2nd consecutive day, Pound, the major UK currency experienced a fall against Euro under the speculation that the Bank of England is going to cut the growth forecasts in the to-be released quarterly Inflation Report. According to many economists, to keep the interest rates at a record low figure, that is the only option for the Bank of England. Incidentally, even against USD, Pound reached its weakest level in the last 6 months as a recent report suggested that the inflation rate in UK has stayed at the highest level since last May. Apart from that, Pound slumped the most in 8 months against Yen as the Group of 7 officials of the major industrial nations in the world stated that the Japanese currency is showing excessive moves. The gauge which measures the volatility on Pound against Euro has jumped up to a 7-month high; the Government bonds of UK, on the other hand, was more or less unchanged.

According to the FxPro Group’s Chief Economist, Simon Smith, the inflation numbers that are being seen today are in no way going to cause the Bank of England start any sort of tightening. The economy of UK is pretty weak to withstand that. Simon added further that the relationship between currencies and data has become more complex than ever and there is no firm data which can cause reduction in the stimulus expectations. Simon commented that it is very much possible that Pound will decline further over the next few weeks.

On today, Pound has declined by 0.4% against Euro and against USD; it has experienced a drop of 0.2%. Consumer prices, on the other hand, have surged ahead by 2.7% from its value a year earlier, as far as the data released by the Office for National Statistics is concerned. The consumer price increase was kind of expected by the economists. The implied volatility on Pound against Euro for last 3 months, jumped up to as high as 8.6% and this marks the highest value since 19th June. In 2012, the gauge ended at a value of 5.9%.

In 2013, Pound has declined by 3.8% on a whole. This is actually the 2nd worst performing currency among the developed market currencies, while the 1st position is claimed by Yen. The 10-year benchmark UK gilt yielded a total of 2.11%.