The pound continued to trade around a one-year high against the US dollar on Wednesday, after UK inflation figures a day earlier raised bets that the Bank of England would lift interest rates sooner than previously expected.
In morning trading, sterling was around £1.3307 against the dollar and €1.1102 against the euro.
Data on Tuesday showed that inflation had hit 2.9 per cent last month, exceeding forecasts and overshooting the Bank of England’s 2 per cent target. The amount spent on fuel and clothing rose particularly strongly.
All eyes will now be on the Bank of England’s Thursday meeting at which policymakers are du to vote on interest rates. Members of the nine-person Monetary Policy Committee have warned that that their tolerance for higher inflation, despite the weakness of the overall economy, is limited.
"We still expect a 7-2 vote for unchanged rates. But unemployment is lower than in early 2016. The risks of a hike are not zero and may be growing," economists at Bank of America Merrill Lynch said on Tuesday.
“On balance, we think that Brexit uncertainty will continue to trump inflation concerns, and rates will remain on hold for now – but the risks are shifting,” said Adam Chester, head of economics at Lloyds Bank’s commercial banking arm.
The pound suffered a pummelling in the aftermath of last June’s Brexit vote and is still more than 10 per cent lower against the dollar since then.
In recent weeks it has fallen against the euro, inching closer to parity, though that’s largely been a function of the strength of the trading bloc’s currency.
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