The Pound has strengthened this morning following the release of stronger than expected UK inflation data with Core Consumer Prices rising at an annual pace of 1.2% adding weight to the argument that the Bank of England should consider increasing UK interest rates which have stood at their historic low of 0.50% for more than six years.
This follows recent comments from Bank of England Monetary Policy Committee member Kristin Forbes who argued that “Waiting too long would risk undermining the recovery – especially if interest rates then need to be increased faster than the gradual path which we expect” and comments from MPC member David Miles who said there are arguments for “stating the journey now” towards a rate hike.
An increase in interest rates makes the associated currency more attractive as global investors seek yield in a global economy with historically low interest rates. Both the Federal Reserve in the US and the Bank of England in the UK are now expected to increase rates either late in 2015 or in 2016. Most expectations are for the Federal Reserve to increase rates before the Bank of England with the Bank of England more likely to raise rates in 2016.
The Pound increased to 1.5670 against the US Dollar (from 1.5598 before the inflation data) and increased to 1.4154 against the Euro (from 1.4085 before the inflation data).