Currency Note

Pound stronger as UK inflation hits 10-year high

By Alex Bennett December 15th, 2021

Sterling has strengthened against both the euro and the dollar following the release of UK inflation figures this morning.

Inflation in the UK surged to 5.1% year-on-year in November largely due to rising energy prices and supply chain disruptions. The price of fuel has increased notably, but the rise has also been driven by clothes, food and second hand cars.

Following this, all eyes will now be on the Bank of England’s monetary policy meeting tomorrow, where officials will consider both rising inflation and the economic uncertainty surrounding the Omicron variant.

The Federal Reserve’s monetary policy meeting will conclude this evening and any surprises could impact currencies.

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GBP: How will the Bank of England react to higher inflation?

The pound has strengthened against the euro and the dollar this morning following the release of UK inflation figures.

The figures show that inflation reached a 10-year high of 5.1% in November, above expectations of 4.7% and surging from October’s reading of 4.2%. This high level of inflation would typically prompt an interest rate hike from the Bank of England. However, it is widely expected that the Bank will keep rates on hold tomorrow due to economic uncertainty brought about by the Omicron variant.

The Bank of England will hold its next monetary policy meeting tomorrow and any surprises could impact the pound.

GBP/USD past year

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EUR: ECB meeting tomorrow

The euro strengthened against the dollar yesterday morning but weakened again in the evening.

It’s a light day for data in the eurozone, but a series of PMI figures for both Germany and the eurozone will be released tomorrow.

Yesterday, figures showed that industrial production in the eurozone rose by 1.1% month-on-month in October, rebounding from two months of contraction.

The European Central Bank will hold its latest monetary policy meeting tomorrow. It’s thought that there won’t be any firm decisions on policy due to the uncertainty surrounding the Omicron variant.

USD: Fed meeting to conclude this evening

The dollar is slightly lower against a basket of currencies this morning ahead of the conclusion of the Federal Reserve’s monetary policy meeting.

This evening, the minutes from the meeting and press conference are expected to reveal that officials will be ramping up the tapering of their bond buying programme and bringing forward their interest rate projections. The markets are expecting the bond buying to end around March.

There will be a series of economic data releases in the lead up to the press conference, including retail sales, which are expected to show a decrease in November.

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