Sterling exchange rates had a brilliant end to the week with GBPUSD closing at 1.2817 and GBPEUR closing at 1.1716- both very interesting levels for Sterling sellers globally. The main reason for the gains is that we have seen the Dollar index weaken slightly and thus seen the U.S Dollar weaken a little alongside it, this, alongside a hawkish Bank of England has given traders a good enough case to continue buying Sterling- however, this week will be a key one in the next part of Sterling’s cycle.

For Sterling there are a few very important releases- the first will be inflation data on Wednesday morning where we are expecting the inflation rate to come down slightly to 8.5%- though this is a slight drop, this may not be enough for the BoE to warrant any changes in monetary policy forecasts and hikes will still be on the cards- so irrespective of the data release I think the Pound should benefit from the result, unless for some reason it dropped back to 2%.

On Thursday the BoE will meet for their interest rate decision where we are expecting a 25bps hike to 4.75%, markets will mainly be watching for any forward guidance, as the Pound is rising due to traders betting on the BoE base rate going to around 5.5% by the end of this year- any sign of the BoE pausing or cutting would put a stop to recent gains.In my personal opinion I feel there are too many issues with the UK economy- right now it seems that things are already heading South and for that reason going north of 5% rates, or even 6% would really put the UK economy in a bad place, I do feel that analysts are being too hawkish on the BoE, but time will tell.

Finally, on Friday the UK has retail sales data releasing- where we are expecting a minus figure, but still an improvement from last month- this could have an effect on Sterling depending on how it comes out- any major change from expectation would dictate that.