Poundsterling had excelled in European trading yesterday, but then closed the New York session in a minus condition. When the news was written (19 / February), the currency continued to weaken against the US Dollar below the 1.3000 threshold. The latest UK inflation data succeeded beyond expectations, but the Pound exchange rate was overshadowed by an open dispute between British and European Union officials.

The UK Consumer Price Index report shows that the inflation rate increased 1.8 percent (Year-on-Year) in January 2020. This is a solid increase compared to 1.3 percent growth in December, as well as the initial estimate pegged at just 1.6 percent. Inevitably, the data destroyed expectations of a cut in the interest rates of the UK central bank (BoE).

"For the MPC (BoE), the fact that inflation has evolved in harmony with its projections, provides another reason not to cut interest rates in the near future," said Ruth Gregory of Capital Economics.

Even so, the release of inflation data only had a positive effect on the pound for a moment. The majority of market participants highlight rhetorical battles between British and European Union officials who are increasingly fierce. In fact, trade negotiations between the two regions have not yet begun.

Pound Sterling Strengthens in European Trade

The British insisted on demanding a free trade agreement that did not require the country to follow European legal standards and rules. On the other hand, Europe states that an agreement can only be reached if Britain is willing to follow a number of key single market rules.

British Prime Minister Boris Johnson, French President Emmanuel Macron, leader of British negotiator David Frost, and leader of EU negotiator Michel Barnier; are some of the most prominent names that have voted in this dispute.

Sterling gained 0.3 percent to around 1.3040 against the US dollar in European trade today (18 / February), after briefly weakening in the previous session. UK labor data shows the number of unemployment claims is far lower than initial expectations, so that the exchange rate Pound.

However, uncertainty surrounding the UK-EU trade negotiations is expected to continue to weigh on this currency. Claimant Count Change data shows an increase in unemployment claims from 2.6k to 5.5k in January 2020, instead of up to 22.6k as previously thought.

In contrast, the Employment Change data shows an increase in new recruitment of 180k in the last three months of 2019, far higher than expectations set at 145k.

Optimistic with Release of Labor Data, Strengthening Pundstreling

The Average Earnings Index data was corrected from 3.4 percent to 3.2 percent in December, worse than the 3.3 percent expectation. However, the unemployment rate in that period stagnated at the level of 3.8 percent. Overall, UK employment data released this afternoon can be a strong reason for the central bank not to change interest rates in the near future.

"For each vacancy, on average there are 1.6 unemployed people who can be chosen by employers. The financial crisis reached a peak, when the ratio approached 6. In general, this dynamic should encourage salary increases, because companies compete to recruit employees," Nikesh said. Sawjani, British economist at Lloyds Bank.

The pound strengthened thanks to optimistic conclusions from the release of this employment data. However, future prospects are still clinging to uncertainty. While the Anglo-European Union trade negotiations have not yet begun, high-ranking officials have been throwing away contradictory discourse.

The leader of the British negotiator, David Frost, today also contributed to the vote by delivering an aggressive tone of speech. He warned the European Union that it could not accept their demands that Britain adhere to the rules of the single market, in order to obtain a duty-free trade agreement.