British Pound Tumbles Against Dollar, Euro on Weaker-Than-Expected Inflation

The GBP/USD fell on Tuesday, last trading 1.3191, down 0.0148 or -1.08%. The selling pressure was generated by the release of U.K. inflation data which came in below expectations.

According to the Office for National Statistics, annual CPI for August read at 0.6%, unchanged from the previous month. Traders were looking for a read of 0.7%. Month-on-Month inflation came in at 0.3%, it was forecast at 0.4%.

The British Pound broke against the U.S. Dollar and the Euro because the weaker-than-expected inflation numbers indicated the central bank may have to do more to stimulate the economy.

The EUR/USD was trading slightly better at 1.1244, up 0.0010 or +0.09%. Its range was contained, however, following inside the high and low of last Friday. The price action suggests that investors were unfazed by today’s economic reports that showed German ZEW Economic Sentiment falling short of the 2.8 forecast at 0.5. Euro Zone ZEW Economic Sentiment also missed the estimate with a 5.4 read versus 6.7.

The Euro Zone Employment Change report showed a read of 0.4%, the same as the previous period, but better than the 0.2% estimate. According to the report, Euro Zone employment reached a new post-crisis high in the second quarter of the year.

The U.S. Dollar was up against the Japanese Yen and the riskier commodity currencies such as the Australian and New Zealand Dollars on Tuesday as investors continued to fade the dovish remarks from Fed Governor Lael Brainard the day before. The price action suggests that yesterday’s movement may have been exaggerated.

Nonetheless, traders did trim the odds for a September rate hike to 15 percent on Tuesday, down from 24 percent on Friday.

December Comex Gold futures traded in two directions on Tuesday, mirroring the movement of the U.S. Dollar. Uncertainty over the direction of U.S. interest rates was likely the biggest influence on the price action. Some traders said that gold prices are likely to tread water until the Fed makes its interest rate decision on September 21. Lower equity markets also made gold a more attractive investment today.

Crude oil prices fell on Tuesday as investors reacted to a gloomy prediction by the International Energy Agency. The IEA said a sharp slowdown in global oil demand growth, coupled with growing inventories and rising supply, means that the crude oil market will be oversupplied at least until June 2017.

This was a huge change from last month’s report which said supply and demand would likely balance over the rest of 2016. The IEA also said in its last report that inventories would fall fast.