Inflation Data Awaits Sterling, Swiss Franc Recovers

(CTN News) – The pound remained within its recent Inflation ranges against the euro and dollar on Monday and rebounded against the Swiss franc, at the start of a week where the Bank of England will have to deal with inflation data that will further inform the decision to raise interest rates.

It was up 0.07% against the dollar at $1.2154, keeping it just a little bit off the six-month low of 1.20535 that was reached in early October. As compared to the euro at 86.71 pence, it was a touch softer at 86.72 pence, which was up 0.1% on the day.

As a result, swings in the exchange rate against the Swiss franc, a traditional safe haven around the world, have been more dramatic.

It is important to Inflation note that the British currency rose 0.23% against the franc on Monday after plummeting nearly 1% on Friday as investors moved to the safe haven in anticipation of a further round of developments in the Middle East conflict over the weekend when markets were closed.

We are expecting the UK consumer price index (CPI) to be released on Wednesday, along with employment data the day before, which will be the main macroeconomic releases this week.

This will be closely watched by investors since sterling has been supported in the first half of this year by sticky inflation, driving expectations that the Bank of England (BoE) will be able to raise interest rates for a longer period of time than other central banks.

There has been a slump in the pound as recent months have seen markets pare back these expectations, but market pricing still indicates that there is about a 50% chance of another 25 basis point rate hike during this cycle.

According to Paul Robson, NatWest markets head of G10 FX strategy, in a note to clients, the CPI release in November will be “important for the November meeting of the Bank of England.” However, we expect it to remain soft enough that no further tightening will be necessary.

Sterling’s value is supported by expectations that UK rates are going to remain high for a longer period of time. In spite of this, Robson advises investors to remain on guard for a shift from rates to relative growth as a driving force.

There is no doubt that markets all over the world are exceptionally data-dependent, reacting strongly when economic or inflation numbers fall short of expectations that had been expected.

As a result, the Chief Economist of the Bank of England, Huw Pill, told an event on Monday that he felt the markets had become too short-term in their view of the impact of data on the BoE’s interest rates.

A spokesman for Pill added that the BoE must not take the pace of price growth as proof that the battle against high inflation has been won just because the pace of price growth has slowed.

I think we still have a lot of work to do if we want to get back to the BoE’s target of 2%. Probably there is a lot of work that needs to be done to make sure that when we do get it back to 2%, we do so in a way that is sustainable when we do so.”

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