Rate Hike Expectations Increase
Sterling made progress yesterday after the latest labour-market data, especially as the Bank of England had wanted evidence of labour-market strength before raising interest rates, there were increased expectations of a rate hike in December. Risk appetite held firm and domestic bonds yields increased providing support for Sterling.
Headline US retail sales increased 1.7% for October, above consensus forecasts of 1.2% and there was a marginal upward revision for September to 0.8% from 0.7%. The data boosted confidence as it partly offset worries triggered by the sustained decline in consumer confidence, although sales will be boosted by higher prices.
The Pound drifted below 1.3450 against a strong dollar but managed advances against the rest of its peers, notably reaching 1.1860 against the Euro. In contrast the Euro slipped to fresh 16-month lows around 1.1320 against the dollar.
At market open UK CPI inflation jumped to 4.2% from 3.1% previously, above the forecast of 3.9% and a record high since the beginning of 2012. The core rate also increased to 3.4% from 2.9%. The data added to expectations of a December rate hike. Sterling strengthened to near 1.3450 against a strong dollar and 1.1900 to the Euro.