Deflation Sends the UK Pound Lower

After showing strength on the heels of the recent election in the United Kingdom, the pound is now weakening. The latest inflation data is in, and it appears that deflation is affecting the sterling.

UK pound saw gains following the recent election. With a victory for the party in power, many saw the election as a way to maintain the status quo, providing the certainty that many crave in these times. This helped boost sterling.
Now, though, the post-election strength is disappearing as a new concern appears. Deflation has crept into the UK economy, and it is dragging on the pound. Prices on the year fell by 1.0 per cent in April, indicating that the Bank of England’s inflation target is far on the horizon.
Indeed, some feel that the quantitative easing program currently in place by the BOE might need to be stepped up in order to accelerate the economy. This move would weaken the sterling further.
At 10:24 GMT EUR/GBP is down to 0.7223 from the open at 0.7228, with the pound gaining against the euro on the news that the ECB plans to accelerate its own quantitative easing plan. GBP/USD is down to 1.5523 from the open at 1.5653. GBP/JPY is down to 186.4160 from the open at 187.8180.

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