Sterling pushes back against majors


The pound pushed back to recent twenty month highs against the euro and gained against the dollar on Tuesday as investors now anticipate an interest rate hike. Furthermore, market sentiment amongst investors changed to risk-on meaning that the pound benefits when stock markets are rising. The euro and dollar tend to benefit when the opposite is true.

A UK-specific boost to sterling comes as traders bet the Bank of England will increase interest rates from record lows as soon as November. BoE Governor Andrew Bailey said at the weekend the Bank “will have to act” to keep a lid on inflationary pressures.

Some analysts feel that an interest rate hike could be damaging for the pound and believe it could cause the currency to weaken in the months ahead. Increasing interest rates when growth is slowing will cause inflation to continue rising.

Higher interest rates is a much better reward for savings rather than borrowing. As consumers and investors would rather save than borrow, this could cause the UK’s economic growth to stagnate.

Key announcements

7:00 – UK – CPI Y/Y – Actual 3.1% from previous 3.2%
7:00 – UK – Core CPI Y/Y – Actual 2.9% from previous 3.1%