The British pound sold off against both the Euro and US dollar after much weaker than expected producer prices in the month of August. Input PPI dipped by 0.5 percent while output PPI increased by a tepid 0.1 percent on a monthly basis.
As a key inflation indicator, the drop in producer prices will satisfy doves who believe that the Bank of England will remain on hold until the remainder of the year. The UK housing market on the other hand is holding steady. House prices according to the DCLG increased to 12.4 percent year over year in July which helped to offset news that UK subprime specialist Victoria Mortgages is no longer funding new loans. The trade balance and leading indicators are due for release tomorrow. The strength of the British pound in July suggests that both numbers could worsen.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com