The pound has fallen well below $1.25 on bad inflation news
The pound plunged below $1.25 this morning, after disappointing figures showed inflation was weaker than expected in January.
The pound fell as low as $1.2457 in mid-morning trading, 0.55 per cent down. Meanwhile, it fell 0.68 per cent against the euro, dropping to €1.1739.
Inflation had been expected to hit 1.9 per cent in January, a stone's throw from the Bank of England's two per cent target. However, in the event, it rose to 1.8 per cent, a two-and-a-half year high, driven largely by soaring factory gate prices.
"The rising inflationary pressures in the UK are somewhat worrisome as the inflation nearly approaches the Bank of England’s (BoE) two per cent target in January," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
"However, given the extraordinary times due to the Brexit, the BoE Governor Mark Carney had clearly stated that the bank is ready to tolerate a higher than otherwise inflation and would stay as accommodative as possible during the two-year Brexit negotiation period. On top, Mark Carney has announced last week that there may be an additional slack in the UK’s economy, which added an additional dovish flavour to the BoE statement."
Russ Mould, investment director at AJ Bell, looked ahead to labour market statistics, due to be released tomorrow.
“Wednesday’s wage growth number will be particularly informative. This reached 2.8 per cent in the three months to November and it is important from a consumer spending perspective.
"If inflation starts to overtake it, then consumers could feel worse off, to the potential detriment of retailers and restaurateurs who are themselves feeling the heat from higher costs, the weaker pound and increases in their business rates bills from April.”
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