The Pound Sterling jumped over $1.32 against the Dollar and reached its highest level against the Euro in more than three weeks in anticipation of the ONS inflation data announcement. Analysts did not expect a major change in the rate, but traders remained optimistic throughout the morning. The GBP hit 1.1022 against the EURO in early trade while world stock markets were hitting record highs.
Key UK financial data behind stronger Pound
The Office for National Statistics announced updated inflation and data on Tuesday, stating that UK inflation rose to 2.9pc in August, up from 2.6pc the previous month and higher than the expected 2.8pc pick-up. The latest employment data is expected on Wednesday.
While these statistics offer a deeper insight into the average Briton’s budget, it’s the Monetary Policy Committee’s meeting, scheduled on Thursday, that has the markets’ full attention.
Interest rate vote due on Thursday
The main economic event this week will be the Bank of England’s interest rate decision. The higher inflation data increased hawkish hopes of a rate rise and pushed the Pound up on currency markets. It jumped to trading 0.5% higher against the Dollar at $1.3237 following the ONS data release.
With only three MPC meetings before the end of the year, the markets have put the chance of a rise in 2017 at just 28%. The pound could rise if more than two members of the Bank’s Monetary Policy Committee (MPC) vote for the base rate to rise from its current level of 0.25%.
The decision will be influenced by the latest inflation figures and employment data to be released on Wednesday. The BoE has previously signalled limited tolerance for high inflation and this could raise the chance of more members voting for an interest rate rise.
Lee Hardman, a currencies analyst at MUFG, said about the stronger Pound and the upcoming vote: “We are still none the wiser over why BoE Chief Economist Haldane did not vote for a rate hike in August after teeing it up in advance. It adds uncertainty to the vote count at this week’s meeting policy. New Deputy Governor Dave Ramsden will also be voting for the first time. Another 7-2 vote to remain on hold is expected, although there is a risk of more votes in favour of a hike. Overall, the developments should encourage the pound to rebound further.”