Pound Seen Getting Scant Relief From Marginal Inflation Uptick

  • Sterling fell in week against most of its major peers
  • Data Tuesday forecast to show CPI quickened to 0.4% in March

The pound looks unlikely to get much of a boost next week even as traders get the chance to turn their attention away from the vote on Britain’s European Union membership and back toward the economy.

Economists expect data on April 12 to show inflation quickened to 0.4 percent in March, the fastest pace in more than a year. But that’s still well below the Bank of England’s 2 percent target for annual consumer-price growth, giving officials little encouragement to raise interest rates from a record-low 0.5 percent when they announce their policy decision two days later.

Waning prospects for a rate increase helped send the pound to the lowest in more than two years on a trade-weighted basis this week, and saw it sink to the weakest since June 2014 versus the euro.

Slow price growth, and particularly lackluster core inflation compared with the U.S., is a key reason for the pound’s weakness, said Viraj Patel, a currency strategist at ING Groep NV in London. And all the while, Britain’s potential exit from the world’s largest single market weighs heavily on sterling.

“Even without the ‘Brexit’ headwinds, pound-dollar would have traded lower this year based on this inflation divergence,” said Patel, whose bank sees sterling little changed by mid-year at $1.41. “Markets are looking for any reason to sell the pound, while there’s limited buying appetite given the ‘Brexit’ event risk.”

More Declines

The predicted annual inflation rate would be the highest since December 2014 and up from 0.3 percent in February. U.K. consumer prices stagnated or fell in seven months since the start of 2015.

The pound dropped 0.8 percent this week to $1.4107 as of 5 p.m. London time on Friday. It slipped 1 percent to 80.87 pence per euro, a fifth consecutive weekly decline, and on Thursday sank as low 81.17.

Sterling fell against 11 of its 16 major peers this week, and risk reversals derived from options suggest it will drop against all but one in the next three months.

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