Inflation Soars Putting Wind In Sterling’s Sails

Monthly UK CPI inflation figures have come in this morning well above forecasts sending Sterling flying since 9.30am. The Pound has pushed through the 1.60 level against the US Dollar in the short time since the figures came out. Inflation, which has been coming in above the Bank of England’s target rate of 2 percent month on month, pushed up to 3.7 percent against a prediction of 3.3 percent. This will add yet more fuel to speculation that the Bank of England will be pressured to raise interest rates to deal with inflationary pressure. Prior to this morning’s figures, most predictions settled on May or June as the most likely months for a rate rise but this will be brought forward further to this mornings data. To make the most of Sterling’s upwards momentum today, speak to your currency broker.

Pound Sterling – UK Markets

The Pound, which prior to this morning’s inflation figures was already at an eight-week high against the Dollar has shot up through the 1.60 levels within the first half an hour of the data release this morning. The 3.7 percent inflation figure, well above both the forecast of 3.3 percent and the Bank of England target rate of 2 percent will add considerable pressure for a UK interest rate rise. Bank of England Governor Mervyn King had to write four letters to the Government last year explaining why inflation exceeded its target and will now begin 2011 with another letter. UK consumer confidence figures yesterday had also buoyed the currency over the past twenty four hours.

US Dollar – US Markets

Following a bank holiday in the US yesterday, the Dollar has lost ground against Sterling as well as the Euro. Standard and Poor’s suggestions that the US credit rating could be under threat unless more steps are taken to curb debt also had a negative effect. The US comes back onto the economic calendar today with the housing market index as well as NET TIC Flows which in and out flows of resources for the US.

Euro – European Markets

The Euro slipped against the US Dollar and Pound as nations at yesterday’s EU finance meeting failed to reach a decision regarding whether the size of the bailout fund should be increased. Ireland is also high in mindsets today. The health of the Irish banking sector is causing concerns as some reports have suggested that the state may be required to take control of the Bank of Ireland. Today also sees the vote of confidence on Irish Prime Minister Brian Cowen which if he loses the crucial vote could trigger a general election causing more uncertainty in the nation.

Other Currencies – Highlights

The Canadian Dollar has approached a two and a half year high against the US Dollar as well as appreciating against eleven other of its sixteen most traded counterparts as investors await toady’s interest rate decision from the Bank of Canada. Interest rates are widely expected to be kept on hold which has been the policy of the Bank of Canada since September with falling exports and slower global forecasts being given as reasons. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.