Pound Drops Against the Euro on Inflation Data

By TraderVox.com

Tradervox (Dublin) – A report from UK has showed that inflation slowed to its lowest since November 2009, weakening demand for the pound as speculation rose Bank of England will embark on its asset purchases program. The pound has weakened against the euro for the first time in three days after it increased to the strongest in a week yesterday. The drop has come prior to the release of Bank of England meeting minutes which is scheduled for tomorrow. Investors will be looking at these minutes keenly as they look for any indication on the banks stand on quantitative easing. Further, the announcement that the bank will use the Extended Collateral Term Repo Facility to sell $7.87 billion worth of debt tomorrow in a bid to reduce risk to financial stability has not done enough to push the pound up against the euro.

In a report released today, the consumer price Index has increased by 2.8 percent compared to an increase of 3 percent in April. Releasing the report, the Office of National Statistics highlighted that this is the weakest level since September 2009. The market was expecting an increase of 3 percent.  However, the pound decline against the euro has been limited by speculation Federal Reserve and European Central Bank will increase stimulus in the respective economies.

The G20 meeting started yesterday and will continue today as they discuss Europe crisis. The Spanish benchmark yield surged to euro era record touching the level that sent Greece, Portugal, and Ireland asking for international bailout. Concerns about the deepening crisis in Europe has led to some safe haven demand which has limited the pound decline.

The sterling pound declined by 0.5 percent against the euro to trade at 80.68 pence per euro at the close of trading in London yesterday. It had earlier advanced to 80.23 pence which is the strongest it has been since June 12.

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