Currency analyst

GBP’s leap forward. Will be there a roll back?

 “Brexit” equals higher prices…It sounds like self-evident truth. But how will the Bank of England respond to this turn of events and how will these data influence the pound’s near-term future? Let’s try to figure it out.

The CPI numbers were much better than expected, PPI wasn't hot but it wasn't soft, and house prices aren't falling. In contrast, despite the shrinking sales volumes, they rose 1.3% from July.

BOE’s officials are going to face a serious dilemma. Because of the UK’s inflationary pressures, they might be reluctant to launch additional easing program. Stronger inflation could even bring the possibility of a premature rate rise on the table. Everything will depend on how the BOE’s policy makers will view the inflation data. If they feel that inflation is broad based, that it’s more of a domestic nature, they will unlikely recourse to the easing measures in November. If the recent rise of inflation is anticipated as the consequence of expensive import, the bank’s officials could think that some monetary stimulus is still needed. Moreover, from Mark Carney’s recent comments we can conclude that the BOE was expecting a higher inflation rate, took it as a sort of a given and didn’t reject the idea of a rate cut, once its expectations were confirmed. 

Meanwhile, cable spearheaded on the inflation releases and almost reached the high (1.232) of October 12. The pound may continue its rally towards 1.24 and even 1.25 resistance lines, but not higher, as the US dollar is supported by the expectations that the Federal Reserve will raise rates this year, while the British pound is under threat of “hard Brexit”.  

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