Pound Sterling (GBP) Exchange Rate forecast to firm as inflation data approaches

The Pound firmed against the Euro and US Dollar on Monday as investors look ahead to Tuesday’s UK inflation data and as mixed PMI data out of the Eurozone weakened demand for the single currency.

Sterling is forecast to strengthen on Tuesday due to the release of a number of important data reports. Early in the session the Pound is likely to rise due to house price data compiled by Nationwide being forecast to show a further increase in prices.

Investors will be focused mostly on the latest Consumer Price Index and Core Consumer Price Index reports. If the data shows that inflation rose closer to the Bank of England’s target of 2% we can expect some movement. Economists however are forecasting that the rate of inflation slowed last month.

The month on month CPI figure is forecast to rise from the previous month’s figure of -0.6% to 0.5%. The yearly figure is expected to come in at 1.7%, softer than the previous reading of 1.9%.

Over the weekend Sterling made its sharpest drop against the US Dollar in four-months as economists saw the Federal Reserve and Bank of England’s policies on interest rates diverging. Today the Pound remains close to a one-week low.

“If Sterling is to surge, real news on interest-rate hikes is required. The Bank of England minutes seem to have reinforced the notion that rates will remain at record lows into next year,” said the executive director of UK corporate forex sales at Nomura International in an interview with Bloomberg.

Against the Euro the Pound firmed today due to the release of mixed PMI data out of the Eurozone. A positive report out of France was offset by a disappointing one out of Germany.