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Inflation Data Boosts Sterling

Inflation Data Boosts Sterling

Sterling gained ground after the UK inflation data came in better than expected. The  increase in the inflation rate triggered fresh speculation that the Bank of England would have to adopt a more hawkish policy stance. There was a shift in money-market pricing with expectations of two rate increases in 2022 with an element of Sterling buying ahead of next week’s policy statement. There will be speculation that more MPC members will call for a slowdown in asset purchases.

Following the Cabinet reshuffle, Liz Truss was nominated as Foreign Secretary. Markets will be monitoring developments surrounding UK trade deals which were handled by Truss as Trade Secretary as well as relations with the EU. Sunak will remain as Chancellor which will maintain expectations of policy continuity.

In level terms, EUR/USD starts the day near to the 1.18 threshold once again. The GBP/EUR remains in the lower half of the 1.1750 corridor. Whilst GBP/USD continues to trade within the $1.38-1.39 range also.

Turning to the day ahead, the main release of note will be from the US. The August reading of retail sales is projected to show they fell by 0.8% in the month, having declined by 1.1% in July. Elsewhere in the US, the latest initial jobless claims data is due. However, barring any surprises, the data shouldn’t be too impactful on the market.

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