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Pound Yawns as British CPI Slips Below 2.0%

GBP/USD is almost unchanged in the Wednesday session. In North American trade, the pair is trading at 1.2882, down 0.10% on the day. On the release front, inflation levels were soft on both sides of the pond. In the U.K., headline inflation dipped to 1.8%, shy of the estimate of 1.9%. In the U.S., CPI ticked up to 0.0%, shy of the estimate of 0.1%. Core CPI posted a gain of 0.2%, matching the estimate. On Thursday, the U.S. publishes retail sales and PPI.

British CPI slowed to 1.8% in January, falling below the 2.0% level for the first time since January 2017. Inflation has now dropped for three successive months, pointing to weakness in the British economy. This was underscored by soft GDP data earlier in the week. GDP for Q4 slowed to 0.2%, and the monthly GDP reading for December has raised alarm bells, with a decline of 0.4%. The British pound is down 1.8% in February, as nervous investors shake their heads at the turmoil surrounding Brexit. Prime Minister May and her European counterparts have all said they don’t want to see Britain crash out of the EU without a deal, but that seems to be the extent of any consensus.

Another factor weighing on the British economy and the pound is the U.S-China trade war. The U.S. has imposed 10% tariffs on Chinese goods and has threatened to raise the tariffs to a punishing 25% on March 1. Trade officials from the U.S. and China are meeting for a third round of negotiations, and U.S. Treasury Secretary Steven Mnuchin has joined the talks. There was positive news on Tuesday, as President Trump said that he could postpone the March 1 deadline if the trade talks made sufficient progress.

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