UK Inflation has surprisingly fallen for the second month in a row, as figures released this morning showed prices are rising at the slowest pace in 4 months. It’s a stark contrast to when Inflation in January was at 3%, with this mornings release showing inflation now at 2.6%.
The main contributing factor to this consecutive drop was in large thanks to falling Oil prices reflecting in a drop with the cost of fuel. We also saw recreational prices dropping, with a particular drop within toys, hobbies and games off setting a strong rise within the clothing sector.
What this effectively means, is that the likelihood that The Bank of England reduce interest rates down to 4.25% at next month’s meeting is almost set in stone at a probability of 99%.
A surprise to a lot of traders and investors, however, is the fact that despite the drop with inflation signalling imminent interest rate cuts, The Pound has actually continued its recent climb against The Dollar. US President Donald Trump stated last night that he may force trading partners to choose between The US & China when it comes to trading relations, which again has caused further Dollar weakness. On top of this, it’s also reported that a new proposal has been agreed to charge a 5% annual levy on countries who maintain digital services taxes, on any US assets currently being held. Furthermore, the proposal suggests this 5% levy will increase by 5% each year until it reaches a total of 20%.
This afternoon, we turn our focus to The Bank of Canada and their interest rate decision. The Canadian Dollar has suffered significant losses over the past nine weeks, with their economy showing visible signs of strain and struggles towards their levels of debt. The Bank of Canada are largely expected to keep rates on hold, but the vulnerability surrounding the currency is simply due to the fact that Canada’s terms of trade have deteriorated dramatically, and now the jobs market is also showing signs that the trade tariffs are taking effect.
GBP/EUR 1.1662 GBP/USD 1.3254 GBP/AED 4.8706
GBP/AUD 2.0808 GBP/CHF 1.0837 GBP/CAD 1.8446
GBP/NZD 2.2419 EUR/USD 1.1353 GBP/ZAR 25.0118