Pound eases from Brexit highs after UK inflation slows

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17 January 2018

thomasdodds

Sterling eased off its highest level since the Brexit vote on Tuesday after the latest set of UK inflation data showed that consumer price growth slowed in December, although still remained well above the Bank of England’s target level.

H
eadline inflation in the UK unexpectedly slowed to 3% for the final month of 2017, modestly lower than the six year high 3.1% recorded in November. The core measurSe, of which excludes the volatile component of fuel and energy, also dipped slightly to 2.5% from 2.7%, in line with the BoE’s prediction that inflation would likely peak at the end of 2017.

Despite the slight drop-off, inflation in the UK remains comfortably above the Bank of England’s 2% target rate and we would need to see a more prolonged period of slower price growth in order to rethink our call for another interest rate hike in the UK this year.

One of the more hawkish members on the BoE’s monetary policy committee, Michael Saunders, will be speaking at an event this morning. Investors will be looking for some early clues as to the potential tone of communications from the central bank at its next MPC meeting in February.

Euro slips as ECB poised to keep policy message unchanged

Investors took a breather from the recent trend of US Dollar selling yesterday. With currency traders in the US back at their desks following Martin Luther King Day, there was very little news out of the world’s largest economy for the market to digest. The New York Empire State Manufacturing index was somewhat disappointing, coming in at 17.7 versus the 18.0 consensus, although was mostly overlooked.

Focus was instead on the release of a report from sources of the European Central Bank which suggested that policymakers in the currency bloc were unlikely to tweak their policy message soon. The central bank, the report suggests, is not expected to make any fundamental changes to its forward guidance when it meets next week and will instead allow more time to assess the outlook for the Euro-area economy before deciding to adjust its rhetoric.

Announcements in the Eurozone will pick up pace today, with a revised set of inflation data for December to be released at 10:00am UK time. In the US, Federal Reserve members Evans, Kaplan and Mester will all be making speeches this evening after UK close.