The pound was bid this morning versus the euro and the dollar following hawkish comments from Bank of England Monetary Policy Committee member Andrew Sentance.
Earlier today BOE MPC member Andrew Sentance said the decline in inflationary pressures may be only temporary given sterling’s deprecation. This could send inflation above 5% and increasing the need for an adjustment higher to the interest rate. Sentance claims that a weak pound has kept inflationary pressures high as imported goods continue to add to inflation levels. A stronger pound would help to counteract rising import prices as this would make imported goods less expensive
Sentance is one of the most hawkish members of the MPC and has voted to raise interest rates at every MPC meeting since June of last year.
Recent data shows inflationary pressures run high 2010 CPI rose by 4%. While the inflation level is above the target of the Bank of England the data was well below expectations for a year over year increase of 4.4%. The lower than expected inflation numbers has pushed back market expectations for a BOE interest rate increase to August from May.
Sentance expects inflation will pick up and has voiced his concerns repeatedly, but his term as an MPC member expires in May and his comments may be shrugged off by traders as the day progresses.
After the comments hit the news wires the GBP/USD traded higher at 1.6353. Support for the Cable is at last Monday’s high of 1.6180 with resistance at 1.6425 and 1.6460. The EUR/GBP was lower at 0.8824 with support found at the trend line off of the mid-February low at 0.8790. Resistance comes in at the October high of 0.8940.
This afternoon a slew of US data releases are on the calendar with the most important being the Core CPI m/m release at 12:30 GMT. Lower than expected inflationary pressures in the US should keep the dollar on its back foot going into the weekend.