GBP Risks Are Growing With Bank of England Action Bets Rising On Lower Inflation

The UK reported the lowest levels for its inflation in four years, as per data from the ONS. Inflation sank to 0.8% in April, which was the lowest since August 2016, as lockdowns to contain the pandemic hit global oil prices and forced clothing retailers to cut their prices.

As noted, given the lockdown measures, consumers, of course, were not out on the town shopping as they typically would. All non-essential high street stores were closed and there was just a general tightening of spending from consumers. The fall in oil prices due to the lack of demand also brought down inflationary levels in the UK.

The fall in inflation has again fuelled some speculation the Bank of England (BoE) could move to negative interest rates to bolster an economy that has been hit by the coronavirus pandemic. Some BoE officials have already hinted the central bank may resort to negative rates.

What does this mean for GBP?

The fundamental factors are again stacking up against the GBP; Brexit stalemate and more Bank of England action. GBP this week has been allowed to recover, given the risk appetite seen across the market. It is somewhat of an excuse for a needed technical correction. However, at some point, the theme will continue in terms of GBP rallies being sold and at quite some pace, it is just a matter of time.


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