After a good run against the Euro of late Sterling has had a difficult few days to the start of the week as GBPEUR rates have dropped by 2 cents. There are a number of factors to consider that have been negative to the Pound. As highlighted in yesterday’s report Inflation rates fell which caused Sterling to drop against the Euro.
In theory if inflation is low it means that the Bank of England can keep interest rates low for a longer period of time which means less confidence in investing in Sterling therefore causing the Pound to weaken.
The Bank of England minutes out this morning at 930am have seen a 6-3 split against continuing with further Quantitative Easing. The worry for the markets is that many doubt the Bank of England’s commitment to try to affect Inflation.
The recent extension of further bond-buying by the US has led to a huge amount of Dollar strength recently and with the UK deciding to opt against further QE themselves this could be another reason for Sterling’s recent weakness.
With the new Governor Mark Carney due to take over from Mervyn King in July his stance during his time in Canada is to keep interest rates low.
The UK has this morning published Retail Sales which were 1.3% lower in April than in March as bad weather continues to blight the UK. Food sales also fell to their lowest monthly level in almost two years. With the UK having avoided a triple dip recession recently this gave Sterling a welcome boost but potentially the release has just papered over the cracks.