Sterling has just bounced following higher than expected UK inflation numbers.
August showed a 0.7% increase in prices, with headline inflation levels boosting to the highest levels in six months. Rising inflation levels increase the odds of earlier interest hikes from the Bank of England, which makes the Pound more attractive.
Sterling had already made steady gains over the past couple of weeks as Brexit rhetoric has become a bit more positive (particularly from EU side) and there’s some optimistic expectations in the market about today’s informal EU summit in Salzburg. It’s unlikely that anything substantial will come from this meeting, however, there might be some more conciliatory tones from the EU side, as they throw Theresa May a bit of a political lifeline.
The Irish border remains a major hurdle and that is the deal-breaker for any negotiations to progress. Furthermore, there’s still conflicting views on how viable May’s proposals are when going through voting in parliament. That’s a risk that has yet to manifest its way into markets for the time being.
As a result, the GBP/EUR and GBP/USD have both just pushed to a 2-mth high.