Sterling rose across the board on Wednesday as Bank of England (BoE) policy makers indicated that rising inflation could spell trouble for the UK economy towards the end of the year.
Minutes from the latest BoE policy meeting revealed a unanimous decision to leave interest rates unchanged at 0.5%. However, the main reason given as to why some members did not vote for an increase of 0.25% was because of the uncertain Greek situation and with this apparently settled we could expect as many as three of the nine members to vote for an increase at the next meeting. The minutes also revealed a belief that rising inflation could signal an interest rate increase by the start of 2016. With the prospect of greater returns on sterling holdings within six months, investors decided to support sterling on the back of these comments. With little fundamental data released from elsewhere, sterling ended the day as the major winner.
Today sees the release of retail sales data from the UK, which will give an accurate view of consumer sentiment. A better-than-expected increase in sales could induce further sterling strength, particularly with the inherent inflation pressure this may cause.