Pound Drops against Dollar on Inflation Data

By TraderVox.com

Tradervox (Dublin) -The sterling pound has been the best performer in the last three months increasing by 4.8 percent over the period. However, the current upward trend has changed today after government data showed that the inflation dropped in April more than the market was expecting. The pound fell against the greenback after extending gains for the last three days. Further, the sterling weakened after the International Monetary Fund recommended that Bank of England should resume its quantitative easing program to spur economic growth in the country.

The current European crisis is seen as a hindrance to economic growth and the strengthening pound was bound to hurt exports into the 17-nation trading bloc which takes 40 percent of UK’s exports. However, today’s inflation data will ease the pound’s surge which is good for the UK economy. According to Lee McDarby of Investec Bank Plc in London, the recent run has made the market long for an opportunity to sell and the inflation data provides that opportunity.

According to a report from the IMF, the Bank of England should embark on a program to inject more stimulus into the economy as the recent European crisis will derail the recovery. The IMF suggested quantitative easing or cutting interest rates as the possible ways the bank might take to ensure economic growth. However, BOE policy makers stopped the quantitative easing program this month after injecting 325 billion pounds into the economy. The minutes of their meeting of May 9-10 will be released tomorrow where investors will try to establish the bank’s stand on monetary easing program.

After the release of the inflation data, the sterling pound dropped by 0.2 percent against the dollar to exchange at $1.5789; the pound had fallen to $1.5733 on May 18 which is the lowest it had been since March 16. However, the Great Britain Pound gained by 0.2 percent against the euro to trade at 80.75 pence per euro.

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