Sterling has dropped slightly after data showed inflation fell to its lowest level since June 2016 last month as the coronavirus pandemic sucked demand from the global economy and caused oil prices to tumble.
Low inflation would give the Bank of England space to ramp up its stimulus programme again when its policymakers meet on Thursday. The British central bank is expected to announce a fresh increase of at least 100 billion pounds in its bond-buying firepower.
Sterling is struggling to join the G10 rally today as stalling Brexit negotiations keep the outlook uncertain. This morning’s inflation data has not helped the pound’s prospects but instead adds to the anticipation that the Bank of England will extend its Asset Purchase Facility tomorrow.
The pound has risen more than 4% against the greenback in the last three months but is still far off levels seen before the new coronavirus sent global markets tumbling in March.
Brexit uncertainties are still weighing on the pound, but leaders from Britain and the European Union agreed on Monday that talks on their future relationship should be stepped up. British Prime Minister Boris Johnson suggested an agreement could be reached in July.
With a status-quo transition deal set to expire at the end of the year, Britain is seeking a free-trade agreement with the EU, which it left on Jan. 31, but negotiators have so far made little progress.
Talks on the future relationship will enter a hot phase from September, a German government document reviewed showed.