Even though inflation in the UK rose by the fastest pace in 1 year, the British pound fell 400 pips today.
Last week the British pound rallied 300 points despite signs of weaker growth and it is not until this week that price action finally reflects fundamentals. This is more obvious when we look at EURGBP. After range trading between 69 and 70 cents for the past 2 months, we finally see a strong break to the upside. The ECB and BoE face similar inflationary conditions but the ECB could realistically raise interest rates given stronger economic data but the BoE does not have much choice other than to keep rates unchanged for the foreseeable future.
[B]Written By Kathy Lien, Chief Currency Strategist for DailyFx.com[/B]