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Reservations over selling Sterling

Reservations over selling Sterling

Sterling drew limited support from a steadier tone surrounding risk appetite, although there was still an important element of caution with this week’s rail strikes also a negative factor. Sterling settled just below 1.2250 against the dollar from highs near 1.2280 while the Euro consolidated close to the 1.1630 level.

Bank of England MPC member Mann stated that there are signs that inflation in the UK is becoming more embedded and persistent and also had more momentum after government support measures for households. She called for more aggressive rate hikes to reduce the risk that Sterling depreciation domestic inflation increases inflation, but was concerned that there is an increasingly stark trade-off in terms of battling inflation against deteriorating real income. From a medium-term view, there was the possibility of lowering rates when domestic support to demand fade.

There will be some reservations over selling Sterling ahead of Wednesday’s inflation data with the headline CPI rate expected to edge higher to a fresh 40-year high at 9.1%. Sterling edged higher to 1.2260 against the dollar on Tuesday with the Euro retreating to around 0.8580 as tight ranges prevailed.

Euro Bank President Lagarde reiterated that the ECB intends to increase rates by 0.25% at the July meeting as price rises are becoming more widespread across sectors and measures of underlying inflation have risen further. She also noted that the bank expects to raise rates again in September.

The Euro overall managed to edge higher on Monday as the dollar retreated slightly, although overall moves were limited, especially with US markets closed for a holiday. The Euro settled around 1.0525 at the European close.

The Euro opens near 1.0520 against the dollar this morning.

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