Sterling rallies following positive CPI figures

Sterling rallied this morning following unexpectedly positive CPI figures released today. Whilst economic experts had anticipated inflation rates would fall to 1.5%, their steady hold at 1.8 per cent was widely welcomed by the markets. Sterling was bolstered by the positive data, gaining 1.0 per cent against the single currency (reaching a weekly high of €1.1723) today and a high of $1.6577 against the greenback. It also gained 1.4 per cent against the yen (to Y156.33)

Whilst the figures prompted investors to move away from ‘safe-haven' currencies such as the US Dollar and Japanese yen, the currency forecast remained rather doveish in the short-term.

David Clements, analyst at Caxton FX says, "Today's inflation figures show it's not all doom and gloom for the UK economy as some have said recently, with the risk of deflation now appearing remote. However, tomorrow's release of the latest Bank of England minutes may dampen this optimism slightly, as investors will be looking closely at how the committee came to its surprise decision to extend their quantitative easing programme by £75 billion last month".

Data released this afternoon has revealed weak housing and PPI figures emerging from the US, which the market is still digesting.