Wednesday, 18 May 2011

Sterling weak despite high inflation/BoE Minutes today

18th May 2011
Good morning. High inflation figures yesterday gave Sterling a boost, however the gains were short lived. Rates this morning have already started to fall, as investors acknowledged that higher inflation for now was unlikely to lead to an interest rate rise before year-end. Today we have the BoE minutes, which we'll look at in more detail after the usual rate snapshot as at 08:30am this morning:
  • GBP/EUR 1.1379
  • GBP/USD 1.6249
  • GBP/AUD 1.5273
  • GBP/NZD 2.0599
  • GBP/CAD 1.5771
  • GBP/CHF 1.4293
  • GBP/ZAR 11.222
  • GBP/JPY 131.80
  • GBP/HUF 304.06
  • GBP/DKK 8.4853
  • EUR/USD 1.4275
High inflation for the UK, but Sterling remains weak

The UK Consumer Prices Index (CPI) annual rate of inflation rose to 4.5% in April, up from 4% in March.The rise in CPI was bigger than analysts had forecast and follows a surprise fall in the index last month.

CPI is now at its highest level since October 2008. The increasing pressure to raise rates following the jump in inflation was reflected in the currency markets, where the pound rose by more than half a cent against the dollar to $1.6285, and by almost 0.4 cents against the euro, to 1.1460 euros. This chart from the BBC illustrates inflation:
















However, gains were short lived as analysts said the data did little to change expectations that UK rates will rise from 0.5 percent in November at the earliest which is much slower than other regions including the euro zone. This has caused the Pound to fall back nearly 1 cent already from yesterdays high of €1.1460.

Today's Data - Bank of England Minutes and Employment

Weak readings for UK jobs figures this morning could add to the view that rates will stay low, even as retail sales due on Thursday are expected to rise due to extended holidays in April.

At the same time, the release of BoE meeting minutes on Wednesday will be watched closely for any shift in tone from policymakers, particularly Martin Weale, who has been voting for a rate rise but last month said he had been surprised by the economy's weak recovery.

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