It appears the chickens have come home to roost, as another inflation report shows a fall in both core and headline inflation. The BoE’s argument was that lower Oil prices were putting pressure on inflation and it was not weakness in consumer demand. It appears the BoE’s case is lacking substance as core inflation drops 0.2% and headline inflation is now in negative territory. UK consumer spending has been less than convincing with many people opting for saving and investing, rather than spending on cheap retail goods. The impact is probably felt in the high street as inflation is now slowing considerably. Sterling declined steeply on the news and is trading under $1.5500 against the Dollar. There has also been an increase in both long and short open interest positions. This, combined with a fall in volume in the futures market, is suggesting that we may see some increased volatility as the markets potentially enter a corrective phase again.
Cable continues to trade lower coming into the New York Open at $1.5496. If it stays under $1.5500 then the down trend may continue.
GBPUSD Daily Chart