Forex: Higher PPI data give a boost to Sterling

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Data on Producer Price Index in the UK were released today, higher than expected on all levels. The Office of National Statistics which compiles the data, reported that producer output prices on the year rose to 5.4%, higher than the predicted 5.1%. On a monthly basis, PPI output prices rose to 0.9% , again higher than expected at 0.6% and up from the previous 0.5%. Meanwhile, inflation on producer input prices annually gave a reading of 14.6% despite an expectation of 12.5%, but easing down from February’s revise 14.9%.

The data gives a clear indication that inflation accelerated in March, with surging oil prices contributing to the increase. Crude oil prices have surged almost 10% on the month, the largest increase since March 2010.

Despite rising prices, the Bank of England made its decision on Thursday to keep its key interest rate unchanged at the record low of 0.5%, increasing the difference in the rate with the EU, as the ECB increased its lending rate on Thursday by 25 basis points. The current situation in the UK is of concern, and may push the BoE to rethink its policy. All eyes are on the next scheduled interest rate decision in May, to see if there will be a rate hike then.

Even before release of the PPI data, Sterling began rising from a low of 1.6383 to climb up over 40 pips against the US Dollar to a high of 1.6426. What is helping the boost to the Pound is also the fact the greenback is weakening due to the potential government shutdown in the US. Budget talks are currently in progress. EURGBP dipped almost 20 pips around news time to reach a low of 0.8763.