Pound Sterling GBP Losses Forecast Following IMF Brexit Comments

April 12, 2016 - Written by John Cameron

STORY LINK Pound Sterling GBP Losses Forecast Following IMF Brexit Comments

GBP Exchange Rate Volatility Follows UK CPI, IMF Global Forecast

Pound Sterling (currency : GBP) has endured another roller coaster session in the global currency markets today. Sterling enjoyed a steady surge of support after 0930hrs this morning when March’s domestic Consumer Price Index (CPI) data was published. Analysts had been anticipating a slight uptick from February’s counterpart year-on-year CPI showing of 0.3% - in the end, the result printed at 0.5%. This represented the fastest pace of British price rises since the start of 2015 and provided investors holding Sterling-denominated assets with some encouragement that the UK economy is pulling away from deflation.

Pound Sterling Gains Vs. Euro, US Dollar as UK Inflation Rises

Assessing the numbers, the Office of National Statistics (ONS) observed that,

‘the (CPI) rate has risen gradually since October 2015 although it remains relatively low in the historical context: the CPI 12-month rate had never been below 0.5% from its introduction in 1997 to the end of 2014. Similar to 2015, the downward pull on inflation continues to come from prices for food and non-alcoholic beverages, transport, and recreational and cultural goods and services. The downward pull from transport has reduced this month however. These downward pressures have been counterbalanced by an upward pull from price movements for other goods and services, most notably restaurant and hotel bills, and education costs such as university tuition fees.’

Sterling-holders were given further reason for optimism by the UK Core Consumer Price Index data, published at the same time, which discounts the effect of changes in energy prices on the overall CPI number. The Core version showed at 1.5% - considerably higher than February’s 1.2% result - and the Pound Sterling enjoyed sustained support as a result, with the GBP EUR exchange rate jumping to as high as 1.2560.

IMF Predicts that a 'Brexit' Could Cause 'Severe Damage' - British Pound Falls Back

However, a dire warning from the International Monetary Fund (IMF) on the possible effects of a vote in favour of ‘Brexit’ from the UK population on 23rd June. The IMF forecast that such a result in the EU In / Out referendum could illicit ‘severe regional and global damage’. These doom-laden comments briefly saw the GBP EUR exchange rate drop back into the 1.2400s and analysts predict that they could continue to weigh down the UK unit in the short to medium term.

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