In January UK inflation came in at an unexpected high of 3.7% and this week more alarming at 4% which is way off the Bank of England’s 2% target. This prompted the formality of a letter of explanation from Mervin King, governor of BoE, to George Osborne, chancellor of the exchequer. The news of higher inflation in January caused much excitement in the markets and the prospect of higher interest rates sent sterling rallying for the rest of the month; up over 300 points against the dollar hitting a 1.6276 high and the euro with a 0.8670 high. However yesterday, following the BoE Inflation Report, King gave a press conference which turned the market sentiment. He indicated the BoE will not be hiking rates as rapidly as expected since they may need to keep borrowing costs at a low to aid recovery, saying ‘The MPC judges that are attempting to bring inflation back to the target quickly, risks generating undesirable volatility and output and would increase the chances of under shooting the target in the medium term’. His dovish comments caused nervousness among the previously confident long sterling traders, causing the Pound to sell off, dropping 150 points against the US dollar reaching a low of 1.5985 where it found support. This leaves the market in a place of uncertainty, as the BoE forecast slow economic growth, and investors become reluctant to buy the Pound at the higher levels seen this month.

Zoe Fiddes, easy forex Trading, UK Manager

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Zoe Fiddes, easy-forex Trading Ltd, UK branch manager