Pound Tumbles To 2-Month Low After UK Inflation Falls

November 12, 2013

Sterling tumbled to a two-month low against the US dollar today on the back of UK inflation unexpectedly falling to its lowest rate for more than a year in October. The softening inflation rate will likely reassure the Bank of England that the British economy is strengthening and thus lessens the chance of a rate hike soon. This led to a sell-off in the pound today.

The UK consumer price index (CPI) number was well below economists' average forecasts of a drop to 2.5 percent and is the lowest rate since September 2012. It was driven by declines in petrol prices and other transport costs.

GBPUSD slid to a session low of $1.5853, the lowest since September 13, down from the European session open of $1.5960.

Euro was under pressure, falling to a low of $1.3358 after disappointing German inflation data. The Final CPI reading fell 0.2 percent in October, the lowest rate in six months. Since Germany is Europe’s largest economy, the data affected the euro.

The dollar continued to rise against the yen, as it is being buoyed by strong US employment data from Friday. Any strong data will strengthen the case for the Federal Reserve to being scaling back stimulus sooner than the predicted March 2014 date.

USDJPY climbed to a high of 99.78 yen, the highest since September 13.

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