Market sentiment is driving GBP rather than economic data


Sterling had a mixed day against both the euro and US dollar on Monday. A lack of economic data meant the British currency was largely driven by market sentiment. This was welcomed by Sterling investors whom up until Monday had seen the pound fall on a day by day basis, as investors are dealing with the repercussions of an extremely downbeat economic assessment from the Bank of England.

Whilst economic data was scarce on Monday, eyes turned to BoE policymaker Michael Saunders who spoke at the Resolution Foundation. Having voted for a hefty 50 basis points hike last week, Saunders cautioned that inflation could exceed the BoE forecast of 10% inflation and urged the central bank to lean strongly against high inflation expectations. Saunders added that creating a long period of above-target inflation, with a tight labour market, could make inflation entrenched in the economy and very difficult for domestic inflation pressures to return to normal.

The above comments from Saunders are unlikely to ease concerns for businesses and consumers with the latter already facing a cost of living squeeze which is keeping Sterling under pressure.