Pound tumbles against euro and dollar as inflation misses forecast

Euro coins are seen in front of displayed flag and map of European Union in this picture illustration taken in Zenica, May 28 2015. REUTERS/Dado Ruvic

The pound fell on Tuesday (13 September), after data released by the Office for National Statistics (ONS) showed the rate of inflation in the UK missed forecast last month. The release had a negative impact on sterling, which fell sharply against both the euro and the dollar, losing 0.63% against the former to trade at €1.1793 and 0.65% against the latter, exchanging hands at $1.3248.

According to the ONS, the consumer price index (CPI) inflation grew 0.6% year-on-year in August, in line with the previous month’s advance but slightly lower than the 0.7% analysts expected.

On a monthly basis, CPI rose 0.3%, rebounding from a 0.1% decline in July but falling short of the forecast 0.4% increase.

The report added the main upward pressures on inflation were rising food prices and air fares, but these were offset by falls in hotel accommodation, and smaller rises in alcohol, and clothing and footwear prices than a year ago.

“While inflation has remained unchanged this month, the impact of currency changes works with a lag so further rises in consumer price index inflation should be expected,” said Tom Stevenson, investment director for personal investing at Fidelity International.

“With fresh concerns being raised about growth prospects in the UK, the spectre of stagflation cannot be dismissed – something the Bank of England will be desperate to avoid.”

Elsewhere, the euro was up 0.12% against the dollar, fetching $1.1247, while the greenback rose 0.40% against the yen to ¥102.26. The dollar’s rally had petered out slightly after Federal Reserve Governor Lael Brainard on Monday argued for a cautious approach to raising rates, but the US currency regained later in the session.

“The dollar is trading a little higher again having come off a little yesterday on Brainard’s comments, which again suggests that traders are only writing off September and a hike this year remains very much on the cards, which is bullish for the greenback,” said Oanda’s senior market analyst Craig Erlam. – IBTimes

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