The Office for National Statistics released the inflation data for June, with CPI increasing to 1.9%. Since the beginning of 2012, the CPI level had fallen from over 5%, down to 1.5% in May, which some analysts argued would reduce the pressure on the MPC increasing interest rates. The unexpected increase in inflation has put an immediate bid into sterling in the FX markets. Traders have bought Sterling on the basis that the potential first hike of interest rates will be sooner than the BoE’s prediction. The main areas lifting the inflation figure were clothing, food and non-alcoholic beverages.
On the release of the inflation data, cable rallied by over 65 pips to trade at session highs 1.7145.
Link to the ONS June Inflation release