Sterling Declines as Inflation Increased Less than Predictions

Sterling, the major currency of UK declined to a figure that’s the lowest in the last 6 months after a Government report came out showing that the inflation has slowed down more than what was predicted by the economists. Therefore, the Central Bank now has more room for boosting the stimulus which generally tends to weaken a particular currency.

Not only against USD, but Sterling went down against most of its major counterparts. The Bank of England will be publishing its minutes of the 8th – 9th May meeting on tomorrow. It is expected that the number of policy makers who voted for boosting the asset purchases will be revealed through the same. As the inflation data was released, the UK Government bonds rose a bit, but, on a whole, they are more or less unchanged on today.

According to the Global Head of Currency Strategy Department of Banco Bilbao Vizcaya Argentaria SA, Peter Frank, there is negative sentiment for Sterling as quite clearly, the weaker inflation is expected to open door for further monetary stimulus. Frank added that the current figures have cemented the decision of the investors to sell Sterling.

Sterling declined by 0.6% on today and it is currently priced at $1.5157. At one point of time, it went down to $1.5113, marking the lowest level since 4th April. Against Euro, Pound has declined by 0.8% and it is currently at 85.11 Pence per Euro, therefore registering the biggest decline of the same since 7th March.

In 2013, Sterling has experienced a tumble of 3% so far, thereby becoming the 2nd worst performer after Yen, if the developed nation currencies are considered. USD has surged ahead by 4.8%, whereas, Euro went ahead by 2.3%.

When it comes to the consumer prices, the same has jumped ahead by 2.4% in last April, from where it was a year ago. Incidentally, for March, the increase was of 2.8%. The statistics were released by the Office for National Statistics. Incidentally, analysts predicted an increase of 2.6%. If producer prices are taken into consideration, it increased at an annual rate of 1.1%, marking its least surge since September, 2009.

Rates Strategist at Royal Bank of Scotland, Simon Peck, thinks that the gilts have outperformed a bit. The market is currently concerned that the reflation trade may be going away, as mentioned by Peck.