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Posted May 22nd, 2013 by Charles Purdy

Sterling suffers as inflation falls | Smart Daily Currency Note

GBP/EUR – 1.1718

Sterling dropped on almost all fronts yesterday, falling to a seven-week low against the US dollar as markets reacted to inflation rates coming in lower than expected at 2.4% for April, down from 2.8% in March: the first fall since 2012. The figures showed that lower fuel prices outweighed a rise in grocery costs as the cold and wet winter hit crop production. The data gives the Bank of England and incoming Governor Mark Carney more leeway to stimulate economic growth by expanding the UK’s asset purchasing programme and so caused a significant reaction in the market. The government has signalled it would be more relaxed about the bank loosening it’s hold on inflation in favour of acting to stimulate the economy, though Tuesday’s news has reinforced investor’s decisions to sell sterling before tomorrow’s crucial release of minutes from the latest Monetary Policy Committee meeting. The report will reveal how many policy makers voted to expand asset purchases to boost growth as it aims to encourage a stronger recovery, though a change in support to that effect is likely to instil further sterling weakness. Be in touch with your trader throughout today for rates and feedback.

Tuesday’s trading saw the US dollar resume it’s advance against most of it’s major counterparts as markets await the Federal Open Market Committee’s latest meeting minutes this evening. Having lost ground on Monday the currency made gains in most pairings, though markets have been cautious before today’s pending events. The Federal Reserve will be thrown into focus if the meeting minutes show a growing willingness to alter it’s current stance on quantitative easing involving a monthly 85 billion dollars in asset purchases. Speculation from last week has been circulating that the Federal Reserve could start to wind down it’s easing programme as early as this summer and any movements towards this are likely to boost dollar prices going forward. We will have a better idea by the end of today when the FOMC minutes emerge and the Federal Reserve chairman testifies in congress. Call your trader now for market reactions coming up to this evening.

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