Stronger Inflation Data Should Keep GBP Bid

Demand for dollars and yen has pushed the value of the British pound lower despite evidence of stronger money supply growth. Inflation has been a persistent problem in the UK, with producer and consumer prices both surprising to the upside last week.

It is very clear that the Bank of England needs to raise interest rates at least once, if not twice this year and this expectation should continue to keep the pound strong going into the May 10th monetary policy meeting. The BoE has a history of catching the market by surprise, which may explain why some traders are looking for a more aggressive 50bp rate hike next month. Although this is relatively unlikely, it should not be a complete surprise. Meanwhile, the economic calendar is relatively light this week with only the CBI industrial trends survey, GDP and Nationwide house prices due for release. This suggests that the value of the British pound could be dependent upon whether the dollar continues to rebound and whether carry trades continue to succumb to profit taking.