The Pound continues to fall lower this week against most of the major currencies with rates for GBP/EUR sitting at 1.1192 this morning. Although, UK retail sales numbers released this morning offered some clues as to the strength of the high street and the British consumer and they were positive which has helped support the Pound. Sterling has not strengthened significantly, but poor numbers could certainly have weakened the Pound.

UK inflation falls

UK inflation data released yesterday failed to impress the markets with a fall in the inflation numbers to 2.9% down from 3.1% the previous month. The Bank of England raised interest rates earlier this month from the record low of 0.25% to 0.5% but the outlook for further interest rate rises appears to be changing. Yesterday’s weaker inflation data and the accompanying wage growth numbers are likely to persuade the Bank of England to now hold for the foreseeable future.

Wage growth is keenly monitored by the central bank and these numbers take the pressure off any further rate hikes. As such the Pound is unlikely to receive any real benefit from the Bank of England at this time.

The two main concerns for Sterling exchange rates however are the ongoing Brexit negotiations and the stability of the British Government. Ever since Theresa May lost her majority in Government there has been a shadow of uncertainty on the political arena.

The EU recently gave Britain an ultimatum to in essence come up with a higher divorce settlement. Any progress here or unforeseen developments are likely to have a sizeable impact on the direction of the Pound going forward. I am optimistic that a trade deal will be in place but the earliest murmurs will not in fact come until sometime in December. Even at that point there is still a very long way to go before there is one actually in place. Negotiations could go sour at any given point and it is for this reason that Pound should remain firmly on the back foot whilst everything continues to be sorted out.