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The British CPI figure came out today. It came in at 1.8% which was lower than the forcasted 1.9%. It would appear this data has all but ruled out another interest rate hike this year, maybe even for next year as well. There is even speculation of a rate cut before the end of the year. It’s important to remember that these numbers are lagged, so we are probably starting to feel the full effect of all the previous rate hikes in the UK. It seems Mervyn King has done a good job at controlling inflation so far, but there are still inflationary pressures that may not be fully “priced in” to the these figures. At the time of writing, Oil was making record highs in excess of $88 per barrel. If oil remains this high, it may send this figure back over the 2% area in the coming months.

Out of all the central banks now, it looks like the European Central Bank is least likely to cut rates. Due to this the British Pound has fallen to a 2 ½ year low against the Euro.

Against the dollar the pound also slumped on the news. Lets take a look at the chart:

As we can see, cable dropped over 50 pips in the first few minutes after the release and appears to have set the trend for the day.

This post is from Peter Marsden’s site which can be found at http://www.forexpm.com

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