On Thursday, the Bank of England (BoE) will decide on its key rate. Economists at Commerzbank analyze how inflation data due out tomorrow could impact the BoE decision and, therefore, the Pound.

Short-term rate speculation might support Sterling

As the inflation data due for publication tomorrow will illustrate, getting inflation under control will be the more pressing problem right now. If the data once again surprises on the upside speculation about a 50 bps rate hike might intensify, which would probably benefit Sterling.

However, we principally remain cautious as the rate expectations for the rest of the year seem excessive and we see the risk of the market having to correct its expectations. Short-term rate speculation might support Sterling, but medium-term we expect Sterling to be weaker.