UK inflation figures send sterling higher

Sterling extended its gains against the dollar after a much higher than expected inflation reading fuelled expectations of an interest rate hike from the Bank of England.

The December Inflation Report came in at 3.7%, far higher than the expected 3.4%. Rising commodity (specifically food and fuel) prices are thought to be the main drivers behind the surge. These results show the largest rise between November and December in history. Further upward pressure is expected next month as the January figure will show the preliminary effects of the 2.5% rise in VAT. If the Core Price Index (CPI) continues to rise at a similar rate, the BoE will be forced to raise interest rates, perhaps as early as May.

Focus will now shift to next week’s BoE Monetary Policy Committee meeting minutes to see if other policy members have joined the hawkish sentiments of Andrew Sentence in calling for a rate rise.

The euro has also pushed over 1% higher against the greenback after economic confidence figures came in considerably higher than expected. Also, reports of investors from the Middle East and Russia buying eurozone debt have helped to send the single currency higher. However, speculation that the EU’s policy makers plans to stop the crisis from deepening are working are premature, if not pre-glint-in-the-milkman’s-eye. The true depths of the debt crisis have not been realised and national plans to cut deficits are lightweight at best. There could still be a long way to go in this saga. Don’t forget that it was not until May 2010 that the Greek tragedy unfolded. Expect to see a couple of unanticipated events this year.

When should Merv and the boys increase interest rates and by how much? Any thoughts or questions, please feel free to post below.

Tom Hampton
Analyst – Caxton FX
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Strong data supports sterling’s recent ascent

Sterling climbed against the US dollar and the euro following an unexpected rise in UK manufacturing data , which added weight to the UK’s economic recovery and dampened expectations that the Bank of England will extend quantitative easing.

Analysts were predicting the index would fall to 53.2, however, the Purchasing Managers Index (PMI) rose to 54.9 in October from 53.4 in September. The pound jumped to a session high of $1.6089 against the greenback and €1.1545 against the single currency.

The pleasing figure followed on from positive GDP data last week which showed that the economy grew by 0.8%, double the market’s expectation in Q3. This run of encouraging data from the UK economy all but confirms that the Bank of England will hold fire on further quantitative easing when the MPC meets later in the week (Thursday).

In other news, the currency market are generally quiet today with no big moves as investors wait to see what happens in the slew of announcements due later in the week. This is definitely the calm before the storm!

Tom Hampton
Analyst – Caxton FX

Sterling rebounds

Having started the day down, sterling bounced back this morning against most major currencies following the publication of the minutes from the Bank of England’s MPC meeting on the 4th of August. The minutes revealed an 8-1 vote in favour of keeping the interest rate unchanged at 1.0%, but also showed a unanimous vote to maintain the QE budget.


The pound had fallen to a three week low against the dollar amid speculation that the minutes could show a member of the MPC voting for an increase in the Bank’s quantitative easing programme. However, true to form Andrew Sentence called for a 25 basis point rise in interest rates for the third month running. Leaving the majority of the committee in agreement to keep the interest rate at 0.5% and maintain the bank’s £200billion asset purchase scheme.

A rise in the interest rate is not expected until Q2 2011, when a 50 basis points rise is currently forecast.

Midday rates update

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Midday rates update

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Morning Rates Update

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Close of business rates update

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Midday Rates Update

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Close of business rates update

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Midday Rates Update

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Closing rates update

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Pound performs generally well

In the afternoon's trading the pound has given up most of it's earlier gains against the euro as the single currency has responded well to rising stock prices. However the same rising stocks have seen the pound perform well against many currencies, including the dollar dollar and yen. The FTSE 100 currently sits 2.11% up on the day.

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Morning exchange rates

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Midday exchange rates

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Morning exchange rates

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Close of business exchange rates

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Midday exchange rates

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Morning exchange rates

Please find an update of the current interbank exchange rates as of 09.25. In the future Caxton will publish these rates before 09.00 each weekday.

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Exchange rates update

Please find an update of the current interbank exchange rates as of 13.45. In the future Caxton will publish these rates at midday each weekday.

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