Will today’s UK inflation data maintain the pressure on sterling?

Sterling had a steady day for most of yesterday against most of the currencies of its major trade partners. Initially, heightened concerns over the Ukraine crisis following the withdrawal of Ukrainian forces from the Crimea region had seen sterling strengthen against the euro. This came to an abrupt end at 5pm when we saw sterling suddenly lose nearly half a cent against the euro pushing back towards the 1.19 level. This highlights how quickly exchange rates can move and how sterling continues to be under pressure at this moment in time.

Today sees the release of the Consumer Price Index, which compares the average prices of goods and services purchased by British households to data from the previous year. This is an important measure of inflation and the key inflation target for the Bank of England (BoE). Expectation is for inflation to fall to 1.7%, below the target of 2%, and as such an indicator that the BoE will not increase interest rates as quickly as currently thought. This will be a negative for sterling as increasing interest rates are supportive for sterling. So we should expect sterling to continue to be under pressure if results are as expected.

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