Pound Punished as Pricing Power Nil

Last updated 10/13/2009 5:01 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

UK CPI data printed cooler than expected in the month of September coming in at 1.1% versus 1.3% eyed. The Retail Price index came in at -1.4% versus -1.5% projected. The inflation gauges slumped to a 7 year low as utility bills, food costs and hotel and restaurant prices all declined.

Despite the decrease in headline prices, core prices remained relatively steady indicating that deflationary pressures within the UK economy may have eased. Nevertheless, tonight’s data demonstrates that pricing power is clearly absent as the UK economy continues to struggle with the aftereffects of the massive drop in asset prices and a hobbled financial sector.

The news indicates that the BOE has ample room to maintain its ultra accommodative monetary policy and opens the way for possible further quantitative easing by the central bank. It further supports the notion put forth yesterday by the Centre for Economics and Business Research that UK rates will remain at 0.5% through 2011 and will rise only to 2% by 2014.

Cable weakened in the aftermath of the report dropping to 1.5725 as traders continued to push the unit lower on fears that the recovery in the UK economy is losing momentum just as the country’s fiscal deficits are increasing. Pound continues to be one of the worst performing majors in the G-10 universe but for the time being the eco data offers traders no reason to own the currency. However, if tomorrow’s retail sales data and claimant count report surprise to the upside, the unit could see a short covering rally given its grossly oversold condition.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.