The Pound is still performing well against most currencies despite a tricky day yesterday as the markets struggled to digest the news regarding Inflation which has seen the Pound performing so well lately.
All eyes on the Bank of England
The currency market is bracing for the Bank of England to hike interest rates which has seen the Pound strengthening this year and a hike is widely expected in May. The next meeting is the 10th but the news this week has potentially put a bit of a dampener on this enthusiasm.
For a start the Bank of England have been looking to monitor Inflation levels and not just paying attention to whether or not they will hike on the 10th but also whether they will be hiking even further down the line. The general perception is that now any future hikes are less likely, which will mean Sterling could drift even lower if the market does not support better information on Inflation. Essentially Inflation has been rising owing to the weaker Pound as imports increase in cost, this has fed through into higher prices for consumers.
Raising interest rates will help to quell this situation but if Inflation is dropping of its own accord this will not be as necessary. The general trend now is for the market to be pricing in future hikes, but only if Inflation is shown to be rising – this is something we will now have to monitor very closely.
As usual the recent burst of Sterling strength must be taken with a pinch of salt, next week’s UK GDP (Gross Domestic Product) data will provide more insight into whether or not the Bank of England will raise rates and what we can expect in the future for Pound Sterling exchange rates.