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UK inflation surge bolsters sterling ahead of May’s Brexit speech

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At 1.6% against the 1.4% expected, and the 1.2% seen the month previous, December’s inflation figure marked the highest reading for more than 2 years. Given that this makes a Bank of England rate hike more likely than another cut the pound was understandably pleased, climbing 0.9% against the dollar (aided by a dose of greenback weakness) and a more measured 0.2% against the euro. This in turn hampered the FTSE, with the UK index sporadically dipping under 7300 for the first time since crossing that level last week.

Of course sterling’s biggest test this Tuesday is still to come, with the Prime Minister’s hard-Brexit-outlining address just around the corner. It appears that, thanks to reports that have been steadily arriving since Sunday, the majority of what May will say has already been revealed – control over immigration and leaving the jurisdiction of the European court of justice prioritised over reaming in the single market – meaning the pound’s reaction may not be as pronounced as what was seen yesterday. If there is anything unknown still to be announced, however, then the currency could be in for a bumpy afternoon.

Elsewhere the DAX and CAC fell sharply, losing 0.9% and 0.7% respectively as both the German and Eurozone-wide ZEW economic sentiment readings disappointed. As for the returning Dow Jones, the futures are pointing to a 35 point fall after the bell, something that would leave the index lurking just above 19800.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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