The British pound's abrupt and aggressive depreciation following disappointing UK inflation data continues to highlight how sensitive the currency is to monetary policy speculation. The UK headline inflation rate unexpectedly dropped to 2.5% in March, which immediately raised doubts over the Bank of England raising interest rates next month. With UK wage growth rising faster than inflation, the squeeze on consumers is slowly coming to an end.
The British pound was unsettled and vulnerable on Thursday after reports showed that Britain remains the world’s slowest growing major economy. The Office for National Statistics confirmed that gross domestic product reached 0.4% in the final quarter of 2017, slowing from growth of 0.5% in Q3.
It has certainly been a chaotic trading week for the global equity markets amid fears of mounting inflationary pressures and higher interest rates. Asian shares suffered heavy losses during early trading on Friday following Wall Street’s steep declines overnight.
The markets relinquished short-term gains on Friday following the soft retail sales and inflation data and should be poised to edge lower this afternoon as investors re-evaluate the likelihood of an interest rate increase in June. With an air of anxiety suffocating participants who seek risk, and soft economic data from the US and China weighing on sentiment, the “Sell in May and go away” strategy may become a popular choice.