UK Inflation News Dominating FX Markets

By Luke in Currency Articles | February 14, 2011 18:09 | Tags: , , , , ,

This week will be crucial for the pound ahead of growing uncertainty over the outlook for the UK economy. Markets will watch closely the widely anticipated Quarterly inflation report due for release on Wednesday. Inflation news has been dominating price action in the past fortnight and is likely to continue to set the precedent moving forwards. Tomorrow sees the release of CPI and RPI figures which will be key preliminary indicators to current price pressures. Retails sales figures and a labour market report are also due for release this week all of which will help to provide insight into the uncertain outlook for the UK economy.

The market has positioned itself for an interest rate hike in May and Sterling has benefited from this expectation in the past week. Many analysts expect inflationary pressures to have increased in the past month. If the release however shows inflation has yet to accelerate, we may see a subsequent rapid correction in the pound.

The GBP/EUR pair has struggled to sustain a break through the 1.19 mark today. The market is consolidating ahead of the key news due in the next 48 hours and we can expect volatility regardless of the outcome of the release. A push towards 1.20 will be seen if the CPI and RPI figures show an acceleration of inflation towards 4%. A decline back toward 1.17 will be seen if the figures indicate price pressures are easing. Markets have priced in a rate hike in May so a move down towards 1.17 would be quick if figures indicate inflation is becoming less of a problem.

If you have a currency requirement and have any questions or queries with reference to the markets please don’t hesitate to contact me.

Best Regards

Luke Zorab
Torfx Currency Dealer

“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

About Luke

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