Market insights

Inflation Keeps The Pound Strong - MI190124

The UK reported it's inflation number earlier this week.

The number came in unexpectedly higher than anticipated at 4% causing the Pound to jump. This is because the Bank of England still has to try and get the inflation rate down to 2%. It's main lever it can utilise is the base rate. Push the lever and increase the base rate, and inflation should drop (as it has been doing). Pull the lever and the opposite should happen.

Because the inflation number ticked up this takes the pressure off the BoE to pull the lever.

Over in the Eurozone the inflation number came in in line with expectation so Sterling held onto its gains versus the Euro.

With only another speech from the President of the ECB, Christine Lagarde, today, it's unlikely there will be fireworks in the GBP/EUR rate going into the weekend.

UK retail sales this morning came in way off expectations with a monthly contraction of -3.3% versus an expected -0.6%. This caused Sterling to dip immediately, but not excessively. Let's see if it takes the wind out of the Pounds sails.

There's a smattering of US data out later today with the highlight being the Michigan consumer sentiment index being reported just after lunch.

Business news looks promising. The Chancellor, Jeremy Hunt, could be preparing for tax cuts in the Spring. It's well recognised that low tax regimes tend to stimulate growth in a countries economy, and could even tempt overseas investment if the tax breaks are attractive enough. Decreasing inflation and the potential for base rate cuts means there's more wiggle room for Mr. Hunt.

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Economic calendar

EUR: 10:00 ECB's Christine Lagarde Speech

US: 13:30 Michigan Consumer Sentiment Index

As ever we look forward to looking after you and please keep an eye out for our next Insight.

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