Sterling has strengthened this morning after UK inflation figures beat expectations.
The data showed a year-on-year increase in prices (CPI) of 4.2% versus market expectations of 3.9% and previous 3.1% reading. This is over double the Bank of England’s 2% target and increases pressure on them to hike rates next month from their record lows of 0.1%.
Unemployment data out yesterday also supported the case for a BoE rate hike, as the figures provided no evidence of a spike in unemployment in October after the UK furlough scheme came to an end. So, with inflation running hot and job figures continuing to look robust, the markets are increasing the odds of an earlier rate hike from the BoE which has made Sterling more attractive to investors.
As a result, the GBP/EUR has climbed nearly 2-cents from Monday’s low and touched the highest levels since February 2020 (i.e. pre-covid). Although the GBP/USD is up around 1-cent from Friday’s low, it remains at very subdued levels as the Dollar continues to be in heavy demand following last week’s dizzyingly high US inflation readings. Consequently, the EUR/USD has continued its downward trend and now trades at the lowest levels since July 2020.
