After its clean sweep on Monday, rising against every major currency we closely follow here, the GBP couldn’t do quite as well on Tuesday, up only against three and down against both the US and Canadian Dollars. GBP/USD couldn’t maintain its hold on a 1.40 handle whilst GBP/CAD is down almost a cent from its recent high with GBP/AUD more than a full cent lower after a somewhat softer than expected CPI report led to some profit-taking after the pound’s recent strong run.
Today’s UK CPI numbers came in below the consensus expectation of 2.8% and, crucially, below the 2.9% which the Bank of England had been assuming when it warned last week of a somewhat faster pace of UK interest rate hikes. Annual inflation fell from 3.0% to 2.7% in February according to the Office for National Statistics which said, “The largest downward contributions to the change in the rate came from transport and food prices, which rose by less than a year ago.” Petrol prices fell by 0.2 pence per litre between January and February, to 120.8 pence per litre. Food and non-alcoholic beverages prices, meantime, rose by 0.1% between January and February this year compared with a rise of 0.8% a year ago.
As for the UK-EU agreement, we wrote in our North American comment on Tuesday that, “Whether or not the early optimism is well-founded remains to be seen: The reaction of right-wing Conservative MP’s, those in fishing communities and in Northern Ireland may now be crucial in determining whether the GBP can hold on to its gains of the past week.” The environment secretary, Michael Gove, yesterday warned rebellious Tories to keep their “eyes on the prize” as he said he understood the fishing industry’s grave disappointment at Theresa May’s agreement to keep EU fishing policies during the Brexit transition period. Jacob Rees-Mogg, the Conservative MP who leads the powerful pro-Brexit European Research Group of Tory MPs (and who satirists refer to as the Minister for the Nineteenth century!), said he was concerned by Gove’s tone about the negotiation. “The European commission would not allow us something? In a negotiation it is about the importance we put on something as to whether we get it, therefore, what did we get in return?”. Whether the opponents can together unify in blocking the deal is far from clear, but the pound’s recent strong surge appears perhaps to have come to an end. The GBP opens in Asia this morning at USD1.3995, GBP/AUD1.8225 and GBP/NZD1.9490.