The GBP USD exchange rate skyrocketed this morning as UK inflation surged at a faster pace than expected.
Data compiled by the Office for National Statistics (ONS) reported that the inflation rate jumped from 1.8% to 2.3% in February, easily sailing past initial forecasts of a 0.3% rise and reaching its highest levels since September 2013.
The sudden jump also places the inflation rate well above the Bank of England’s (BoE) target rate of 2%, increasing Sterling sentiment further as investors hope that the central bank will be forced to raise interest rates in order to keep inflationary pressures under control.
Economists are not as confident of this however as despite the accelerated pace of inflation and a policymaker breaking ranks last week and voting to hike rates, they predict that BoE Governor Mark Carney will stick to current monetary policy as it leaves him flexible to tackle any potential challenges the Pound may face during Brexit.
It is the uncertainty surrounding the UK’s exit from the EU which is also likely to bring Sterling tumbling down from its current heights in the coming weeks as markets remain concerned that the UK economy will suffer once it loses access to the single market.
Meanwhile the US Dollar remained on the back foot this morning as USD investors reacted negatively to a speech by Chicago Federal Reserve President Charles Evans.
Markets were disappointed as Evans reinforced the Fed’s views that there would only be two additional rate hikes this year, after voting to raise interest rates last week.
Analysts had hoped that the early start to monetary tightening would prompt the Bank to revise its predictions that there would be total of three rate hikes in 2017.
The US Dollar may cede further ground this evening if other Fed policymakers strike similarly neutral tones in their own speeches.
Meanwhile the Pound may be able to advance further on Thursday as economists forecast that UK Retail Sales will begin to show growth again in February after contracting at the start of the year.
However with the onset of Brexit next week, Sterling is highly likely to forfeit much of its recent gains as markets brace themselves for any immediate fallout.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.24 and the USD GBP exchange rate was trending around 0.80.
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