Sterling weaker after poor inflation data and Brexit fears


Sterling weakened slightly on Wednesday after weak inflation data and Brexit fears weighed on the currency.

Inflation fell to its lowest level since June 2016 as the coronavirus crisis has sapped demand from the global economy and caused oil prices to significantly fall. This low inflation will come into particular focus at today’s Bank of England meeting as it gives further weight to the argument that the central bank will ramp up its stimulus programme. The bank is expected to announce an increase of at least 100 billion pounds to its asset purchase facility. The programme was already boosted by 200 billion in March, and further raising would be a direct response to the slow emergence of the UK from the lockdown.

The pound continues to be held down by Brexit uncertainties, adding further woe to the domestic picture. Prime Minister Johnson has suggested a deal can be done by July, but there is very little evidence to suggest that this will be the case. Yesterday a leaked German government document showed that the talks will enter a “hot” phase in September. This adds weight to the argument that these talks are going to run right up to the December deadline.

Key announcements

12:00 – GBP – BOE Asset Purchase Facility Decision
12:00 – GBP – BOE Monetary Policy Statement & Release of Minutes
12:00 – GBP – BOE Interest Rate Decision
13:30 – USD – Initial Jobless Claims

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