Pound jumps as traders lock in an interest-rate hike after UK inflation's surprise rebound

The British pound jumped Wednesday after a surprise flare-up in UK inflation.

Reuters

• The British pound jumped Wednesday after new data showed a flare-up in UK inflation last month.
• The Consumer Price Index rose 10.4% in February, way clear of the figure expected by economists.
• Traders have locked in the probability of the Bank of England raising interest rates tomorrow, despite the ongoing banking crisis.

The British pound rallied against the dollar Wednesday after fresh data showed that the UK logged a surprise flare-up in inflation last month.

The currency jumped around 0.6% to $1.2285 in morning trading in London after a report showed consumer prices rose 10.4% in February from a year earlier, accelerating from a 10.1% gain in January and coming in well above the 9.9% figure expected by economists in a Refinitiv poll.

The rebound in inflation comes a day ahead of the Bank of England announcing its latest interest-rate decision.

Before the data release, some traders had expected the central bank to pause its tightening campaign in a bid to soothe financial markets.

But they're now convinced that the BoE will bring in another 25-basis-point hike following the reacceleration in consumer-price increases.

"There had been a 50/50 feeling about would they hike or would they not and that print today has cemented the fact that they do need to hike tomorrow," City Index analyst Fiona Cincotta said.

When interest rates rise, currencies tend to rally because they become more attractive to foreign investors who are seeking higher yields.

The US Dollar Index – which tracks the greenback against a basket of six other currencies, including the pound – slipped 0.2% Wednesday on the UK's latest inflation news.

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