UK inflation on the rise

After a tough time last week, the pound found some much needed support yesterday following the release of the latest inflation figures for the UK. Inflation is very open at the moment following recent forward guidance from Mark Carney, with the markets very much expecting a return to the 2% target level in the next couple of years. Recent results of deflation have been of little concern to the Bank of England as figures were believed to be somewhat artificial due to the effect of lower fuel prices globally, with expectations that a recovery into positive territory would be realised sooner than later.

Yesterday’s figures confirmed a small growth in inflation at just 0.1%, but critically this was better than the expected result of zero. It was this fact that gave strength to the pound, as with all the current talk of a move towards interest rate hikes, the quicker that inflation rises, the sooner the first hike is likely to occur. GBP/EUR peaked at the best buying rates for over a week and GBP/USD saw a 6 week high during the morning’s trading before correcting in the afternoon. With potential positive news for the Euro (Greek bailout) and for the US (rate rises) in the short term, this spike has given a great opportunity to secure your currency rate for the coming months.

The day ahead is absent of any UK data so sterling market will likely consolidate following yesterday’s gains. The afternoon does however bring some US figures in the form of their latest inflation figures, which are forecast to improve form 0.1% to 0.2%, something that could see the greenback snap as investors continue to speculate on whether a hike in rates will occur next month or not. Greater insight into this will be provided this evening at 7pm with the FOMC minutes.