The pound stumbled out the gate today ahead of the U.K. CPI report with losses accelerating following the release. Inflation slowed to 3.0% from 3.5%, validating the BoE’s forecast for prices to fall back to their 2.0% target level. Slower price growth leaves the door open for additional quantitative easing measures which would sink the outlook for interest rates. Yield expectations have seen their influence on price action diminish as it has became clear that the central bank would remain on hold despite inflation above their 3.0% threshold. The GBP/USD would reverse its losses on the back of positive equity markets as risk sentiment continues to hold a 41% correlation. Britain’s economy has shown enough signs of growth that the MPC will most likely refrain from any new initiatives which could see risk sentiment have a greater role in determining direction. Recent divergence casts doubt on the relationship, or it could be an opportunity to generate profits.
Read More Pound Losses Limited As Risk Appetite Continues, Will UK Budget Statement Add Weight
