Pound Increases Against the US Dollar Despite Falling Inflation

Pound Increases Against the US Dollar Despite Falling Inflation

The Pound has made small gains vs the US Dollar despite UK inflation falling to 1.5% as published earlier on this morning. The inflation level fell to 1.5% last month after a fall in the prices of both fuel as well as clothing in the lead up to the lockdown. The CPI data also showed a fall from 1.7% the previous month according to data provided by the Office for National Statistics.

Oil prices have fallen dramatically over the last few days and began to fall during March as the lockdown took hold of both the UK and the global economy. Many economists have predicted that inflation will continue to fall during this year and could even fall to as low as 0.5% as the economy slows down.

Interestingly, with the data release the lockdown began on 23rd March and this set of data was compiled on 17th March. Therefore, had the lockdown begun prior to the start of March I think we could have seen a lot lower reading for UK inflation. Typically, when inflation falls this encourages a central bank to consider cutting interest rates or to introduce further stimulus in the form of QE.

However, as the Bank of England has already acted very recently to the Coronavirus outbreak I do not foresee any further changes coming. Indeed, in a more ‘normal’ environment low inflation figures could cause the currency invovled to weaken.

However, in this case as everywhere appears to be struggling across the globe the Pound has not been adversely affected vs a number of major currencies including vs the US Dollar.

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