GBP’s post-election rally continued yesterday as traders turned their attention to Wednesday’s quarterly inflation report from the Bank of England. As expected, the UK central bank announced yesterday that it was not to raise interest rates in May. The BoE has now maintained an ultra-low benchmark borrowing rate of 0.50% for over six years. However, recent remarks from policymakers suggest that officials at the bank anticipate a surge in price pressures in the second half of the year, and subsequently it is possible that Wednesday’s inflation report will hint at an earlier-than-expected tightening of monetary policy. Optimistic traders sent the Pound exchange rate higher against the majors in the hope of a hawkish statement on Wednesday morning.

Euro

News that Greece confirmed payment of €750 million to the IMF was not enough to lift the single currency against the Pound yesterday. ‘Grexit’ bets receded slightly on the news, which ensured the Hellenic nation will go on to live another day in the currency bloc, but demand for Sterling was bolstered by hopes of a hawkish quarterly inflation report later on in the week and this drove GBP/EUR to a two-cent daily gain.

Interestingly, Greece was offered membership to the BRICS-sponsored growth bank yesterday. If the Hellenic nation accepts it would join Brazil, Russia, China and South Africa to become the sixth member of the New Development Bank. The suggestion is sure to have ruffled some feathers at the EU because it can only be read as a signal that Greece is considering its options both inside and outside of the 19-nation bloc.

Later this morning data is anticipated to show that British manufacturing output rose by 1.0% in the year to March. But the Pound is not expected to rally on the back of the result because industrial production is only tipped to have improved by 0.1%.

US Dollar

The Pound to US Dollar exchange rate also strengthened by around two cents yesterday, bringing ‘Cable’ to its highest level so far in 2015. The continuation of the post-election rally was fuelled by speculation that some policymakers may have turned, or at least be on the verge of turning, hawkish with regards to monetary policy in Britain. And if Wednesday’s BoE inflation report leads to a rise in rate hike bets then we could see Sterling surge further. Alternatively, the recent rally in GBP/USD presents the opportunity for a rebound lower if policymakers disappoint hawkish bets on Wednesday morning.

A gauge of US labour market conditions worsened from -1.8 to -1.9 yesterday, piling pressure on the ‘Greenback’, and this evening’s budget statement is unlikely to give the ‘Buck’ a boost.

Canadian Dollar

Amid a short-covering rally that sent the Canadian Dollar higher against its US counterpart, the ‘Loonie’ lost out on around two cents to the rejuvenated Pound yesterday. GBP/CAD struck a near-two-month high even though investors sought to take the risk-sensitive Canadian currency higher against the ‘Greenback’. Rising oil prices and fears that US growth could have entered negative territory at the start of the year helped the ‘Loonie’ against the US Dollar but not against the Pound.

Australian Dollar

Sterling rallied by over 200 pips against the Australian Dollar yesterday to strike a fresh two-month high as markets focussed on the possibility that some policymakers are preparing for a tightening of monetary policy in the UK. BoE rate hike bets currently point towards a rise in British interest rates at around the mid-point of 2016, but any comments in Wednesday’s report suggestive of an earlier normalisation of policy could send Sterling surging higher.