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Pound Sterling continues to slide

Published: 17 Jul at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Canadian Dollar Exchange Rate, Euro Crisis, UK, Economy, Inflation,

The release yesterday of the latest UK inflation data did little to bolster the pound as it continues to lose ground against virtually all of the 16 most actively traded currencies in the market,

The Office for National Statistics (ONS) reported yesterday that the rate of consumer price index (CPI) inflation increased to 2.9% in June, up from 2.7% in May, setting a 14-month high but crucially lower than the 3% expected by the majority of analysts.

A rise in the inflation rate had been anticipated because of higher petrol and clothing prices but this was counter-balanced by slower annual rises in airfares and food prices.

The retail prices index (RPI) measure of inflation also rose, to 3.3% from 3.1% in May.

The RPI index is used to calculate many pensions as well as inflation-linked government bonds. It includes some housing costs and other items not included in the CPI measure of inflation and is typically higher than the CPI measure.

New Bank of England Governor Mark Carney has avoided one minor embarrassment in his first weeks in charge at the Bank of England.
If inflation had gone more than one percentage point above the Bank's 2% target, he would have had to write a letter of explanation to the Chancellor after the next Monetary Policy Committee meeting, due in August.

Analysts are predicting that Carney's main policy focus seems to be cantered on keeping UK interest rates as low as possible for as long as it takes to stimulate a sustained economic recovery.

The minutes from the first Bank of England Monetary Policy Committee meeting under the auspices of Carney held at the beginning of July will be released later on this morning.

However, in a break with tradition, the MPC issued a statement alongside its policy announcement making clear its intention to keep a lid on interest rate expectations, warning that the recent rise in market interest rates was “not warranted by recent events in the domestic economy” and would “weigh” on economic growth.

Yesterday, the US also reported its latest inflation data. The data showed that annual US consumer price inflation hit 1.8% in June as clothing, petrol and services costs all increased.

That was up from the 1.4% figure reported in May but still below the target inflation figure of 2%.

The US economy is growing more strongly than most of Europe but persistent high unemployment has put downward pressure on wages, making it harder for retailers and other firms to raise prices.
Federal Reserve chairman Ben Bernanke seems to feel that the current low inflation rate is temporary and see both growth and prices picking up later in the year.

In June, the Fed said it planned to keep the short-term interest rate at its current record low rate, close to zero until the jobless rate falls below 6.5% and provided inflation remained under control.

In a sign that the world economy may be picking up after the credit crunch and recession of the last few years, the Chinese Ministry of Commerce reported yesterday that foreign direct investment (FDI) in China grew at its fastest pace in more than two years in June.
Investment rose by 20.1% from a year earlier to total $14.4 billion. The surge, which even the state-owned Xinhua news agency described as a "surprise", comes amid a recent slowdown in growth in China's economy.

Analysts say the figures indicate investors are hopeful that China's economy will continue to grow robustly.

Today, other than the release of the Bank of England minutes sees the release of the latest UK employment data. US Federal Reserve Chairman Ben Bernanke begins two days of testimony to Congress on the state of the US economy and the Bank of Canada make their first post-Mark Carney policy announcement.