by Adam Solomon
The Pound rallied strongly against the U.S Dollar this morning and the UK currency also made gains versus a basket of currencies, including the Euro, after a report from the Office of National Statistics showed that UK inflation accelerated to a fresh two year high in February. Consumer prices rose 4.4% year-on-year last month, faster than the 4.2% forecast, adding to pressure on the Bank of England to raise interest rates.
The report this morning represents the highest reading since October 2008 and compares the government’s target of 2%. A separate report showed that the UK budget deficit also unexpectedly widening in February, but the Pound rallied purely on speculation that above-target inflation will require an interest rate increase by June.
The preliminary first quarter growth figures in April will take on added significance, while the March minutes released tomorrow may reveal that three or more policy makers voted for an increase this month. The Pound has rallied above 1.15 against the Euro, but the upside move is unlikely to last with Europe committed to raising interest rates next month.
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