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UK Inflation Preview: The closer it falls to zero, the greater the potential slide for the pound

UK inflation figures for April are set to show a considerable deceleration to just below 1%. A sharp fall in inflation may prompt setting sub-zero borrowing costs, weighing on the pound, FXStreet’s analyst Yohay Elam reports.

Key quotes

“Economists expect a substantial slowdown from 1.5% yearly in March to only 0.9% in April. The plummet of energy costs is a significant factor, but also a drop in demand. If that forecast materializes, it would put CPI below the financial crisis lows but above the 2014-2015 slide, attributed to the plummet of petrol prices.” 

“Any level between 0.6% and 1.1% can be considered within estimates. In that case, GBP/USD would likely trade choppily but probably remain in range.”

“A yearly increase of 0.5% or lower would place CPI too close to the BoE’s interest rate. In that case, GBP/USD would have room to slide, as speculation about negative rates rises.”

“Headline inflation holding up at 1.3% or above would provide hope that demand remains robust, cheering investors. GBP/USD would have room to rise as prospects of negative rates would diminish.”

 

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