Pound soars to record highs following inflation shock

By Matthew Boyle

The pound has gained ground across the board and notably against the Euro following news that year-on-year UK inflation, whilst falling to 2.3% showed a higher reading than the expected 2.1%, with the more important services inflation component coming in at 5.9% – also above the expected figure of 5.5%. With UK inflation reducing slower than the expected pace, the result has reduced the chances that the Bank of England will cut interest rates in June and as a result has seen the Pound soar, reaching 2 month plus highs against the Dollar but more notably taking it to the highest levels against the Euro since October 2022. This is the sixth time in the last 18 months that the Pound has touched this ceiling of what has been a very firmly established trading range between the two currencies. With the race seemingly on between the BoE, ECB and Fed as to who will cut interest rates first, this reading, whilst showing it isn’t quite time yet for the BoE to take the interest brakes off, has seen markets back the Pound against the single currency with pressure back on the ECB to cut rates first.

It is worth noting GBP/EUR rates have touched this ceiling 6 times in the last 18 months or so, the last being 2 months ago. However each of those 6 times it has failed to push higher, dropped between 1 and 2 cents in the following two weeks and at best has taken over a month to re-test the ceiling. As the saying goes – history repeats itself, so EUR buyers with a requirement in the coming months may want to consider taking advantage with the ball now in the ECB’s court.

Later today we have US FOMC minutes, Eurozone PMI data tomorrow and US employment date in the afternoon – affording the Greenback and single currency an opportunity to bounce back. On Friday we have UK retail sales but no doubt we are in for a busy few days on the market with the Pound fighting to maintain its gained ground and Euro buying rates at an 18 month plus high.