The Pound has dipped lower against the Euro and the U.S Dollar this morning, while the UK currency also slipped against the majority of the 16 most actively traded currencies, after the Bank of England’s quarterly inflation report. Policy makers expressed a degree of uncertainty that UK inflation would return to the government’s 2% target over the next two years, citing higher commodity prices and a significant increase in consumer prices.

The tone and language used in the report failed to underpin Sterling sentiment, because the MPC collectively failed to give an insight into the prospect of a UK rate increase by June. Policy makers also stopped short of revising inflation forecasts higher, despite the “uncertain” outlook over the coming months and the fact that consumer prices have breached 4% for the first time in over two years.

The market has already priced in a rate hike in the UK and any suggestion to the contrary is likely to weaken the Pound. The UK currency has slipped back towards near-term support at 1.1850 and has lost 0.5% to 1.6045 versus the U.S Dollar. Given that the MPC are still to give any clear indication of a rate hike over the coming months, markets have been a bit rash to price in an increase and therefore the risks to Sterling is weighted to the downside.

Overall the Pound continues to see a sell off against all of its counterparts, although liquidity is light during this afternoons trading this does provide a good sell opportunity for anyone selling funds back into Sterling. If you have a requirement and would like to discuss it with me further do not hesitate to give me a call.

Market commentary by Tom Trevorrow

Senior Trader