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Why Did the Pound Fall as Core Inflation Slowed Down?

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Aug. 18 2020, Updated 5:13 a.m. ET

Pound fell by close to 1%

The pound-US dollar currency pair is directly related to the pound. It had a volatile day on February 16, 2016. The pound rose to a high of 1.4518 ahead of the release of the inflation data. After the data released, the pound fell to a low of 1.4276. It ended the day 0.91% down from the opening level at 1.4303. The European economic sentiment released on a positive note. This added to the pressure on the pound. It also fell against the euro.

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Inflation data came out on a negative note

The Office for National Statistics published the inflation data for January on February 16, 2016. The core inflation slowed down from 1.4% the previous month to 1.2%. The slowing core inflation raises more questions about the BOE (Bank of England). It could delay the plans for rate hike more. The BOE targeted 2% inflation. The headline inflation rose by 0.3% compared to the previous month’s rise of 0.2%. The month-over-month retail price index fell by 0.7%.

Impact on the market

The iShares MSCI United Kingdom ETF (EWU) reacted to the weak inflation data release. It ended the day 1.4% higher on February 16, 2016. The First Trust United Kingdom AlphaDEX ETF (FKU) followed a similar positive trajectory. It rose by 1.1%.

Looking at British ADRs (American depositary receipts) and mining companies, BHP Billiton (BBL) ended February 16, 2016, on a slightly higher note. It rose by 0.20%. Amec Foster Wheeler (AMFW), a construction company, fell by a significant 2.8%. Vodafone (VOD) rose by 1.2%. Prudential (PUK) rose by 0.95%.

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