Sterling rocked by rising inflation

By Ashley Finill

This week has been an eventful one on the currency market as economic data has played a key part in market movements. On Wednesday, the inflation figure in the UK was released which didn’t come in as expected, the figure rising from 10.1% to 10.4%. The inflation increase is due to food shortages hitting the UK in February, mainly salad items in the supermarkets being sparse. With this surprise came a reaction for sterling which saw it drop against the Euro by around a cent on Wednesday’s trading. With inflation increasing it’s too early now to say that the UK’s cost of living crisis is coming to an end. The UK government have forecast that inflation figure will drop to below 3% by the end of October but with the unpredicted increase on Wednesday their forecast may need to be reviewed which could spell trouble for the pound in the future should the UK economy recovery not be as quick as predicted. Should the inflation rate increase again than we can expect to see more of the same for the Pound. With rising inflation comes drastic action needing to be taken with a forced hand from the Bank of England to intervene in the way of interest rate increases which brings us to yesterday decision from BoE Governor Andrew Bailey.

BoE & Fed Increase interest rate to counteract inflation

Yesterday afternoon the head of the Bank of England Andrew Bailey announced that they are once again raising the interest rate in UK, this time by 0.25%. This takes the interest rate in the UK to 4.25%. This is the 11th consecutive time The Bank of England have raised interest rates following a surprise jump in the inflation rate earlier this week from rising prices in the UK. Over the past 3 months the inflation rate had been dropping from the highs seen last year sparked by the cost-of-living crisis. With petrol prices dropping and energy prices also being capped in the Budget earlier this month things had been looking up. But as mentioned above food prices have continued to rise due to supply and demand. In the US, The Fed also increased their interest rate again to help curb inflation in the country. As we have touched on in previous reports last week, the US is facing its worst banking crisis since 2008 coupled with its highest inflation since that period.

Data today and month end

As the working week draws to an end, we do have a flurry of data being released throughout today with early releases already creating volatility in the markets. Retail sales figures have been released in the UK earlier this morning which posted a positive figure of 1.2% from last months previous figure of 0.9%. This has given sterling a much needed boost as we close out the trading week seeing gains of nearly half a cent against the Euro, which is likely to entice Euro buyers today given the losses we have seen over the past week. At 9am & 10am the EU and the UK respectively release PMI data for the month. Both figures are expected to contract from last months figures posted. This again is likely to create some movements in the market, especially if the expected figures are way off what has been predicted. Over to the US, at 12.30pm they release Durable goods and Nondefense capital goods orders. North of the border to Canada, retail sales will be released at 12.30pm. To finish the week off data wise, the US release their PMI figure at 1.45pm.