The pound emerged a clear winner in yesterday’s session, making up lost ground against the euro and the dollar.
The spike was triggered by a relatively ‘hawkish’ policy update by the Bank of England. The Monetary Policy Committee decided to keep interest rates and quantitative easing unchanged, but again indicated that it’s keeping an eye on elevated inflation levels.
Markets took this last point to mean that the prospect of a base rate increase in the first half of 2022 remained firmly on track. A higher base rate would attract monetary inflows into the UK, as investors seek a higher return. This in turn becomes a driver for GBP.
Whether this is enough to regain the ground lost over the past weeks remains to be seen, as considerable global and local uncertainties remain. Domestically, the labour market remains a concern, and more data will need to come out before the bank firms up their hawkish stance.
In other news, the euro had its best day of the month against the greenback, to establish itself in the 1.17 range once more.
Have a great weekend.
Jack Nicholls, Senior Relationship Manager.
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