POUND LIVE: Pound falls to post-Brexit low after inflation data disappoints

THE pound tumbled against the euro after key inflation data gave further clues about when UK interest rates will rise.

pound euro rate august 2017GETTY

The pound was steady ahead of inflationa dn employment releases in August

Sterling dipped to 1.099 against the euro and 1.292 against the US dollar, as markets digested the latest update on the UK economy.

Inflation as measured by Consumer Prices Inflation (CPI) remained at 2.6 per cent in July, down from highs of 2.9 per cent in May.

Higher inflation would likely mean a base rate rise from the Bank of England would come sooner rather than later, as raising rates helps to keep the cost of living in check.

Policymakers try to keep inflation running at around two per cent. 

Employment figures later this week - particulary wage rises - will give another insight into the economy and signal when the Bank of England will raise rates.

If it looks more likely that policymakers will raise rates, the pound is likely to strengthen against the euro and the US dollar.

pound to euro chart august 2017Bloomberg

The pound fell against the euro on Tuesday August 15

In August policymakers kept the base rate on hold at 0.25 per cent and downgraded expected economy growth in 2017.

Governor Mark Carney forecast that interest rates will rise in 2018 and the pound weakened after the update.

Sterling will likely strengthen if there are signs that monetary policies could tigheten sooner rather than later.

Naeem Aslam, chief market analyst at Think Markets, said: "The immediate reaction of the economic data on the Sterling dollar pair was negative and investors pushed the pair lower.

"It appears that the inflation data is losing steam.

"The UK home grown prices are still somewhat muted and it is something which the Bank of England Monetary Policy Committee (MPC) is comfortable about.

"The inflation data overshooting the bank’s target continues to be blamed on the sterling weakness.

"Going forward, the growth picture still looks subdued and this does not appear to be changing into 2018."

Mark Carney: The consequences of Brexit are starting to build

Tensions between North Korea and US president Donald Trump have also calmed, allowing traders to focus on economy data. 

But experts warned the threat of nuclear war could rock markets if the two sides again become agitated.

Craig Erlam, senior market analyst at Oanda, said: "The war of words between the two countries weighed heavily on risk appetite for much of last week and despite today’s bounce, it will continue to pose a threat in the days ahead.

"What we’re seeing today is relief at the situation not deteriorating over the weekend, something traders were clearly wary of towards the end of last week.
 
"Still, given the unpredictability of those involved, traders are likely to remain on edge and I don’t think it will take much for the safe haven rush to resume.

"In the meantime, we’re seeing a small unwinding of those risk aversion trades, with Gold trading slightly  lower and the yen and Swiss franc off against the dollar, pound and euro."

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