Wednesday, 25 March 2015 16:20
LONDON: Sterling remained under pressure against the euro on Wednesday, staying at a one-month low in early trade after data on Tuesday showed British inflation dropped to zero last month, its lowest since records began.
Analysts said the number might further push out expectations of when interest rates would rise from their record lows. Investors are factoring in the chance of a first rate hike in mid-2016, having pushed it back from early 2016 last week.
Bank of England Chief Economist Andy Haldane said last week the bank should be ready to cut rates further if inflation looked likely to stay below its 2 percent target. The next policy move was as likely to be a cut in rates as a hike, he said.
Those comments echoed a cautious tone from the BoE’s monetary policy committee in minutes from its latest meeting released last Wednesday, where members flagged the impact of a strengthening pound on inflation.
The pound was down 0.2 percent to 73.75 pence per euro and against the dollar it was up 0.1 percent at $ 1.4870.
“Our view is that the BoE won’t be hiking interest rates until February 2016 at the earliest and the current inflation outlook suggests the hike can come later rather than earlier. Consequently you have a movement higher in euro/sterling,” said Jane Foley, senior currency strategist at Rabobank in London.
“There is another factor: the approach of the British general election. The market is becoming more aware as we get closer that there could be, potentially, a significant period of time before a coalition is in place.”
Britain holds a parliamentary election on May 7 and the latest opinion polls point to a ‘hung parliament’, in which no single party can form a government on its own.
“Yesterday’s inflation data in the UK and U.S. put a little more pressure on sterling as they came in below expectations”, Societe Generale wrote in a note on Wednesday. “The prospect of falling prices, and the uncertain political backdrop, continue to weigh on the pound.”
Copyright Reuters, 2015
