The pound slid lower on a round of bad news yesterday, preventing it from capitalizing on its rise on Monday. The GBPUSD pair fell about 50 pips from its opening price to end the day at 1.5048.
The CPI report was released yesterday and as expected, failed to impress. The annualized rate fell to 3.0%, much lower from the 3.5% figure posted last month. Why is this significant? Well, this gives the BOE more room to breathe for its quantitative easing measures. While inflation is still above the BOE’s target rate of 2.0%, some economists have said that they expect inflation to be subdued and that it will eventually below that threshold.
Furthermore, this may eventually allow the BOE to even expand their asset purchase facility and not worry about keeping rates at low levels for an extended period. This in turn could lead to bearish sentiment towards the pound over the next few months… which is probably what the BOE wants! As Forex Gump said in a recent post, the BOE may actually want the pound to weaken in order to help their debt problems…
Meanwhile, the UK housing market got a bit of good news, as mortgage approvals were at 35,300, higher than the projected figure of 34,300.This marked the first increase in 3 months.
Still, the markets really didn’t mind this data too much, as once again, they focused on the bad news that came in the form of the CBI realized sales index. The index failed to hit the consensus reading of 18, printing a score of 13. This indicated that sales volume is dropping and that consumer spending in the UK is still weak.
Today, we may see quiet trading during the earlier parts of the European session, as traders may be gearing up for the release of the annual budget. Remember, the UK government is neck deep in debt - if there are signs that their debt levels will only grow this year, it could trigger another round of pound selling.