Sterling has jumped to €1.16 – its highest levels seen all week – after the release of stronger than expected inflation data.
The rate rose from €1.15 yesterday morning – and it’s managed to maintain its new position today.
February’s cost of living data spiked to 2.3 per cent – its highest level seen since September 2013.
This smashed the Bank of England’s target of two per cent, which in turn sparked questions of a rate hike.
Some forecasters believe the inflation data could prompt an interest rate increase this year, to combat the rising Consumer Prices Index (CPI).
But other analysts aren’t expecting much to change at all.
ING economist James Smith told exchangerates.org.uk: “Despite the surprisingly hawkish shift in the Bank of England’s stance last week, we suspect that concerns about surging inflation will be gradually outweighed by the slower growth backdrop.
“We don’t expect any change in Bank rate before the end of 2018.”
The inflation figures have helped to buoy the pound against both the euro and the US dollar.
GBP/USD has risen to US$ 1.25 up from US$ 1.24 yesterday.
But experts warn sterling volatility abounds.
FairFX CEO Ian Strafford-Taylor said: “The good news this week is that the latest inflation figures were above expectations.
“However, with Brexit ever present in the background, nobody can truly predict future rates.
“The pound is particularly sensitive to any news surrounding Brexit as it holds economic and political unknowns.
“Markets don’t like uncertainty which is why we’re experiencing volatility in the pound and seeing rates fluctuate even over the course of a day.”
Sterling’s volatility is likely to continue in the lead up to Brexit.
Prime Minister Theresa May has set the date – confirming article 50 will be triggered by the end of the month.
The Brexit bill will begin the formal process of Britain exiting European Union.
