Sterling has a hit a two month high against the Euro this afternoon reaching a rate of 1.1316 after this morning’s CPI inflation data added further to rumours that the Bank of England may be nearing the end of its quantitative easing programme (money printing). There was also some support from Andrew Sentance (a policymaker at the BoE) yesterday who said the UK economy was moving towards a recovery. The government data out this morning highlighted a rise to 1.5% in consumer inflation for October from a five year low of 1.1% in September. Sterling is becoming more sensitive to this monthly economic release and a move close to the 2% target is seen as positive for the UK, hence the rally.
“The data was only slightly higher than expectations, but it was sufficient to keep sterling happy,” said Adam Cole, global head of currencies at RBC in London.
An end to the QE programme is seen as positive for prospects of higher interest rates medium term, which will raise the yield (return) investors receive on sterling-denominated assets making the pound a more attractive buy.
The question now lies over whether this is a short-lived rise in the GBP/EUR exchange rate or part of a higher move up on the back of positive MPC minutes and industrial data tomorrow. Investors will be looking for clues on the BoE monetary policy stance within the minutes released tomorrow at 9.30am followed by CBI industrial order expectations at 11.00am.
Either way I will be celebrating today’s positive news for our economy over a beer and a curry tonight, have a great evening!