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Hot Inflation Data Keeps Sterling Strong

Hot Inflation Data Keeps Sterling Strong

The British Pound’s strong start to 2022 finds further support as inflation numbers come in better than expected with further surges in inflation also anticipated in the coming months.

UK CPI inflation for December read at 5.4% year-on-year, beating expectations for a reading of 5.2% and surpassing November’s 5.1%. The above-expectation numbers will pile pressure on the Bank of England to act given inflation is now well above its 2.0% target, cementing the odds of a February rate rise. Market analysts are now expecting a February rate hike from the central bank. 

In level terms, The firmer dollar tone is reflected in EUR/USD opening back down in the bottom half of the 1.13-1.14 range. Meanwhile, GBP/USD is operating at the 1.36 threshold, having started the week near the 1.37 mark while the GBP/EUR remains just shy of the 1.20 level.

Aside from UK inflation data, a relatively quiet data schedule for the remainder of the day. BoE Governor Andrew Bailey is speaking at the Treasury Select Committee which will garner close attention following the recent UK labour market and inflation data alongside any further detailing around potential rate hikes will be closely watched.

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