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Pound Fell to a 7-Year Low despite Strong Inflation Data

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Jan. 20 2016, Updated 6:13 a.m. ET

Pound fell by 0.46%

The pound-US dollar currency pair has been on a downtrend since the beginning of the year. It fell by 0.46% on January 16, 2016. The additional fall caused the currency to fall to a seven-year low. The pound started the day positively after the inflation data released. The currency reached a high of 1.4339. Mark Carney is the Bank of England’s governor. Later in the day, his speech caused the currency to fall to a low of 1.4127. It closed the day at 1.4179.

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Carney and inflation data drive the pound

The Office of National Statistics published the inflation data for December on January 19, 2016. The YoY (year-over-year) CPI (consumer price index) came out above the forecasts at 0.2%. The core CPI came out at 1.4%—compared to forecasts of 1.2%. The positive data gave the currency pair an initial uptick. Later in the day, Carney’s dovish comments caused the pound-US dollar currency pair to fall. The Bank of England thought that the interest rate increase might be delayed until there are signs of faster growth and stronger inflation. Any increase in the interest rate would be driven by data, according to Carney.

Impact on the market

The iShares MSCI United Kingdom ETF (EWU) reacted positively. It ended the day 0.41% higher on January 19, 2016. In contrast, the First Trust United Kingdom AlphaDEX ETF (FKU) was on a negative bias. It rose by 2.4%.

Looking at British ADRs (American depositary receipts) and mining companies, BHP Billiton (BBL) was on a negative trajectory. It fell by 0.73%. Amec Foster Wheeler (AMFW) is a construction firm. It rose by 3.7%. Vodafone (VOD) fell by 0.32%

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