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Weekly roundup: Pound strengthens as hot CPI boosts rate hike bets

currency-newsWeekly roundup: Pound strengthens as hot CPI boosts rate hike bets
The pound managed to tick higher earlier in the week, despite the UK’s latest GDP data showing a sharper-than-forecast slowdown in the UK economy. The upside came as UK government bonds rose to a fresh six-year high, suggesting that markets are betting on a BoE rate hike despite the bank’s recent cautious commentary.

A mixed labour market report on Tuesday saw Sterling trade in different directions against its peers. The UK unemployment rate fell from 3.9% to 3.8%, as expected. However, this was partly due to another rise in people leaving the workforce. Meanwhile, real wage growth continued to lag behind inflation.

GBP rallied following the UK’s CPI. Inflation rose from 6.2% to 7%, beating forecasts of 6.7%. This further boosted expectations that the BoE would be forced to raise interest rates again at its May meeting.

But the pound struggled to sustain its highs at the end of the week amid a lack of UK data. A gloomy market mood also weighed on the riskier pound, causing Sterling to soften against some of its peers.

So far this week the pound is wavering amid a lack of data and political instability as Prime Minister Boris Johnson comes under scrutiny once again for his role in the ‘partygate’ scandal.

MPs will now vote on whether there should be an inquiry to decide if Johnson deliberately misled parliament when he denied that government parties broke lockdown laws. This could add to the political instability, thereby weighing on GBP.

At the end of the week, an expected decline in UK retail sales and the country’s composite PMI could also cause headwinds for Sterling.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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