British Pound Sterling | Currency News Views and Outlook

British pound sterling: Currency likely to come under pressure as CPI falls, GBPEUR below 1.2

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Category: British Pound Sterling

Published on Wednesday, 18 January 2012 10:33

Written by Will Peters

A number of exchange rate forecasters are seeing an announcement concerning increased money printing coming in the February MPC meeting.

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British Pound Sterling (GBP) in Euro (EUR): GBPEUR is 0.98% lower at 1.1982 at 10:20 in London.

British Pound Sterling (GBP) in US Dollar (USD): GBPUSD is 0.37% higher at 1.5372.

British Pound Sterling (GBP) in Australian Dollar (AUD): GBPAUD is 0.6% lower at 1.4769.

December CPI came in at +4.2% y/y, in line with consensus.

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UBS UK economist notes that the slowdown is driven by prices of petrol, gas and clothing. Inflation should continue to fall in the months ahead, with CPI expected to end the year below 2%.

The falling rate of inflation will certainly make it easier for the decision makers over at the Bank of England to maintain record-low exchange rates.

More importantly low the prospect of further money printing is rendered almost inevitable.

A number of exchange rate forecasters are seeing such an announcement in the February meeting.

We could thus see the British pound weaken going forward.

That said, the exchange rate markets continue to take significant guidance from the underlying risk perception on the markets.

Today continues with a risk-on theme, this is broadly euro positive and US dollar negative. The pound also loses ground to the euro in such circumstances, hence the GBPEUR rate has fallen below 1.2 once more.

That said, the euro remains highly vulnerable, and with the newsflow out of the Eurozone expected to continue delivering poor news we are likely to see the euro reverse gains once more.