Sterling soared against its major trading partners on Tuesday, as a surprise increase in the UK inflation rate re-ignited speculation that the Bank of England (BoE) could raise interest rates before the end of the year. With a flat inflation level of 0% expected ahead of the release, sterling found itself under pressure throughout early morning trading, as investors grew wary of a negative reading. However, a surprise increase in prices of 0.1% saw sterling make immediate gains across the board.
Following a warning by the BoE that inflation would remain low in the short term due to the strength of the pound, economists pushed expectations for a UK interest rate rise further back into 2016. However, with BoE member Forbes recently advising that an interest rates hike would be necessary before inflation reaches the 2% target, yesterday’s inflation data is bound to excite investors.
Attention looks set to turn elsewhere today, with no fundamental data releases expected from the UK. Instead, they will be looking to the US where inflation data and minutes from the latest meeting of the Federal Reserve could incite market movement.