Sterling is now 1% stronger against the euro and 0.88% stronger against the greenback. The rally wipes out Monday’s decline as investors react to a flurry of economic data from the region.
Core inflation came in at 2.7%, well surpassing the 2% target mark. The CPI year-on-year inflation data showed an expansion of 2.9%, surpassing July’s 2.6% reading.
The bullish data comes before the week’s main event: The Bank of England’s interest rate decision. The BOE have urged caution to investors, that the market is underestimating how soon an interest rate hike may come.
However, uncertainty surrounding the UK’s political and economic outlook as well as weak growth could take premise over rising inflation.
The hard economic data could be explained by an uptick in consumer confidence and stronger global growth, therefore the recent bullish UK data should be treated with caution since fundamentals in the region remain unchanged.
The BOE will likely acknowledge that the improving economic backdrop shows that the UK has proved to be resilient against the unknowns since the vote to leave the European Union. The members will reiterate that a rate hike is imminent, although will unlikely make the move in 2017.
The vote is expected to remain at 7-2 to remain. Still, uncertainties over new Deputy Governor Dave Ramsden’s position could be the element of surprise on Thursday.
Given the developments, the pound could continue to trade at this mark ($1.32) finally claiming back the loses made after the divorce vote.