Below The Quote On "Currency Article" By Ms. Heena Naik, Research Analyst, Currency, Angel One Ltd.

                                       Britain’s growing inflation gives Sterling a boost

As per OECD’s recent research report, the year-on-year inflation rate in the G7 and other advanced countries had faced a major downtrend. However, the odd man - Britain had a different story to tell all together!

Britain’s Consumer Price Index across all items have surged to 8.7 percent in May’23, unchanged from Apr’23. On the other hand, Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 7.9 percent in May’23, up from 7.8 percent in Apr’23.

Rising prices for air travel, food and non-alcoholic beverages, recreational and cultural goods, and services along with second-hand cars resulted in the largest upward contributions to the monthly change in both the CPIH and CPI annual rates. In short, rising consumer prices in Britain are going out of hand. Such is the scenario!

Plunging energy costs have worked in favor of Britain and other advanced countries like the US and the Euro-zone. However, the underlying inflation, such as core CPI and services CPI, continue to rage near or at multi-decade worst levels thereby offsetting any good that arose out of falling energy prices. Having said that, inflation scenarios in the West and EU are still better off than in the UK.

When many major central banks have started to consider bringing their aggressive interest rate hikes to an end as prices cool, even as inflation remains elevated, the Bank of England had no option but to stick to its rate hike repeat mode. Last month (Jun’23), the Bank of England hiked interest rates by 50 basis points to 5 percent, a larger increase than many had expected. The move intensified fears of a mortgage catastrophe as the interest rate influences many other rates in the UK, including those who might have taken a loan, mortgage, or savings account.

Inflation news doesn’t only the interest rates but yields too. Post the inflation data release, the 1-year UK government bond yield surged towards 5.5 percent; the highest since 2008, as it begins to price in higher BOE policy rates than previously expected. In fact, in a recent news, the UK Debt Management Office sold 4 billion pounds ($5.08 billion) of government bonds which is likely to pay an annual return of 5.67 percent. The return is the highest yield since 2007and is likely to mature in October 2025, at auction. Because of this, the 2-year UK gilt yield reached its highest level since 2008 near 5.5 percent. All these factors are the main reason to provide a boost to Sterling Pound which is currently playing around in the bullish territory.

Keeping all the factors in mind, the bullish trend in GBPINR Spot (CMP: 104.80) is likely to continue for some more time pushing the pair towards 105.60 levels. Break of same could push the currency towards 106.40 levels in the near term.

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