EUR/GBP: Downward Momentum Eases As UK Inflation Falls

In the past month, the EUR/GBP pair fell from 0.8797 to a low of 0.8619. The pair’s fall was attributed to the expectations that the UK inflation would force the BOE to start an accelerated tightening process.

However, on Wednesday, things changed after the Office of National Statistics released the CPI numbers. The numbers missed the analysts’ forecasts as the inflation measure fell to a yearly low.

The data showed that the consumer prices rose by 2.5%, which was lower than the expected 2.7%. This was the lowest level since March of last year. This was the third consecutive month of declines. In December, the CPI rose to 3.1% which led to heightened concerns about the future trends in monetary policy. In January, it dropped to 3.0% and in February, it dropped to 2.9%.

After the data was released, the EUR/GBP pair fell to 0.8620, which is the lowest level since May of last year. The decline came as investors removed the chances of a rate hike in the coming month. In fact, in a statement yesterday, Governor Mark Carney removed the probability of a rate hike in the next month’s meeting.

From these levels, there is a probability that the EUR/GBP pair will continue moving higher. Remember, in the previous months, the BOE has been vocal in its support of an aggressive rate hike process. By removing the cloud of a rate hike, there are chances that the pound weakness may persist for a while.