The pound sterling strengthened against the euro and the US dollar yesterday as the expectations of an interest rate hike by the Bank of England continue to support it.
The UK's Consumer Price Index released on Wednesday shows that domestic inflation has risen to nearly a 30-year high, but this has strengthened expectations that the Bank of England will continue to raise interest rates.
The Bank of England has raised interest rates twice since the pandemic – from 0.1% to 0.5%. Everyone expects that rates will be raised to 0.75% or 1% on March 17, that is, at the next monetary policy meeting.
As long as fundamental data allows, the market is likely to live with expectations that indicate that the British currency will initially remain strong against the euro.
However, the March rate increase has already been taken into account in the price at the moment.
On another note, the outlook for the euro may also change. The ECB plans to raise the rate in the autumn. Moreover, ECB's chief economist Philip Lane said that the low level of inflation that was before the pandemic is unlikely to return if we consider all the changes in the global economy.
The pound managed to rise by 0.2% against the US dollar:
This month's movement of the pound is very active. It has been very resilient to the downturn in market risk sentiment, which has actually hampered other currencies.
