The Pound rallied to the highest level in almost a month versus the U.S Dollar yesterday, while the UK currency continues to test resistance around 1.20 against the Euro, after a report showed that a measure of inflation accelerated in December. The report from the British Retail Consortium showed that shop prices rose 2.1% from a year earlier, marginally up from 2% in November and the report adds to speculation that UK interest rates will be increased from the current record low of 0.5%.
Suggestions that the Central Bank will begin tightening monetary policy is hugely supportive to Sterling and once policy makers announce no change in rates today, the UK currency may struggle for some momentum. A separate report earlier in the day showed that the UK trade deficit unexpectedly widened in November, as demand from abroad subsided.
The gap in trade increased to £8.74 billion in November, from £8.6 billion the previous month. The export component of the report did offer some hope, as a weak Pound makes UK products more attractive. The UK currency has gained 1% in value over the course of this week on a trade-weighted basis, with eyes on the Bank of England rate announcement this lunchtime.....Read more
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