Sterling had a difficult Tuesday, falling to the lowest level in almost a week against both the euro and US dollar as UK inflation fell to the lowest levels since 1960. Despite Bank of England (BoE) Governor Mark Carney playing down the fear of deflation last week, the drop in January to 0.3% saw sterling suffer against its major currency partners. With falling oil prices, inflation is likely to fall further over the coming months, and we must wait to see the effects of this. Sterling managed to recover some ground against the euro throughout the afternoon as German economic sentiment came out below its forecast level, suggesting that German investors are still nervous over the effects of the European Central Bank (ECB)’s quantitative easing program, and further fallout from the Greek debt crisis.
Today we have the release of minutes from the BoE’s latest decision on the UK interest rate. With all members previously voting to keep rates on hold, this is unlikely to have changed. Average earnings over the previous 3 months in the UK will also be released, and is likely to have a greater impact if we see this increase as forecast to show the highest level of growth since May 2014.