By James Caley 
Sterling has lost some ground this morning following the latest UK inflation figures. Inflation increased from 2.9% to 3.1%, exactly in line with expectations, but the Pound has moved lower against both the Euro and US Dollar following the release, slipping below the recent trading ranges. With the headline figure matching forecasts and underlying inflation measures remaining relatively stable, there was little in the announcement to significantly change expectations for UK interest rates.
The increase in inflation does, however, keep the pressure on the Bank of England ahead of tomorrow’s interest rate decision. Rates are expected to remain unchanged at 3.75%, but the voting split will be closely watched. At the last meeting, six members voted to keep rates unchanged, while three wanted an immediate increase to 4%. Any further shift towards a rate increase tomorrow could provide some support for Sterling.
Before then, there is plenty to watch from the US. Retail sales are released this afternoon and are expected to rebound by 0.8% following a 0.6% fall last month. A stronger reading could provide further support for the Dollar before the Federal Reserve announces its interest rate decision this evening.
Markets are heavily favouring a 0.25% increase from the Fed, which would take rates to 4%. With an increase largely priced in, the accompanying economic projections and comments from the Fed could prove more important for the Dollar. Any indication that further increases are likely could strengthen the Dollar further, while a more cautious outlook could see some of its recent gains reversed.
The Bank of England decision follows tomorrow before UK retail sales round off the week on Friday, with another monthly decline currently expected. With several potentially market-moving announcements still to come, we could see further movement across GBP, EUR and USD. Anyone with an upcoming currency requirement may want to consider taking advantage of current rates rather than leaving the full requirement exposed to further market movements.