The British pound has edged lower in the Tuesday session. In North American trade, GBP/USD is trading at 1.4012, down 0.22% on the day. On the release front, British CPI dropped to 2.7%, down from 3.0% a month earlier. The reading fell shy of the estimate of 2.8%, and marked a 7-month low. There are no US events on the schedule. On Wednesday, the US releases Current Account and Existing Home Sales. As well, the Federal Reserve is expected to raise interest rates for the first time in 2018.
British inflation remains high, but CPI, the primary gauge of consumer inflation, dropped in February. This is good news for consumers, who have seen their purchasing power steadily deteriorate, with inflation levels of around 3% in recent months. Still, the Bank of England is expected to raise rates at the May meeting, even with the drop in inflation.
After months of rough rhetoric between Britain and the EU, the two sides announced that there would be a transition period following the UK’s departure from the EU in March 2019. The transition deal will kick in at that time, lasting until December 2020. The deal covers the rights and status of EU citizens in the UK and British citizens in the EU, and allows the UK to pursue new trade agreements during that time. There are still some issues to iron out, such as the Northern Ireland border. The transition period is a major, positive development, in that it will enable Britain to enjoy the benefits of the common market, albeit without a seat at the table.
