Sterling powers upwards after positive inflation data

Claire Hogarth21/May/2014Currency Updates

GBP

Sterling bounded upwards across the board yesterday after positive data from the UK. The pound spiked to over 0.5%, before dropping back slightly, to finish the session around 0.3% higher.

The catalytic piece of data was UK inflation, which jumped 0.2% to 1.8% YoY and 2% MoM for April. Inflation was one of the key reasons for putting off an interest rate change, as it has been under the 2% Bank of England target for 3 months. An annualised rate of 1.8 is within the accepted deviation however, which means that the tables have turned again in favour of an interest rate rise.

The Bank will have been relieved to see only 8% growth in house prices over the year, after some analysts feared it would hit double digits. However, London house prices alone shot up 14% in the 12 months to April, forcing the Prime Minister into accepting he might have to ‘scale back’ his flagship ‘Help to Buy’ scheme.

Sterling has tailed off slightly in the weeks since the record 5 year highs, although yesterday could provide the framework for a pound resurgence up towards 1.70.

Today will be interesting as we find out whether last month’s vote to hold interest rates steady was a unanimous decision, as it has been recently, as well as specific minutes from the last MPC meeting. Retail sales for April also make an appearance.

EUR

The single currency suffered against the pound yesterday, losing about half a cent. Trading against the dollar however was largely flat.

German PPI readings were disappointing, showing a 0.1% and 0.9% contraction MoM and YoY respectively. Industrial data from Italy was solid if unspectacular.

European election kick off across the continent tomorrow, with uncertainty over how well euro-sceptic parties will fair driving bond prices in the periphery up and equity markets down. Results are released on Sunday.

As we mentioned yesterday, this is a quiet week for the single currency and it will be at the mercy of data from elsewhere. No data out today.

USD

The dollar was again on the side-lines yesterday as market volatility came from the UK. It struggled against the pound, dropping 0.4 cents over the UK session, while there was little movement in euro/dollar trading.

Data was thin on the ground yesterday, with only Redbook indices showing a slight drop off from last month.

More interesting was a speech from the President of the NY Fed, William Dudley, in which he urged Janet Yellen to continue with monetary easing until at least interest rates are raised. The current multibillion dollar package is set to expire in December, but recent poor data from across the US has raised some questions about the timing.

No technical data due today, but we do have minutes from the previous FOMC meeting that could shed some light on Fed forward guidance.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.