The massive inflation shock last week means that the Bank of England's recent hawkishness is fully validated and the pound looks set to remain the second highest-rate G10 currency after the dollar for the foreseeable future.
Together with the UK economy's relative immunity from Trump's tariffs, the prospect for closer ties with the European Union and resilient domestic demand, we are comfortable justifying the pound's continued rally.
This week offers no major data points, although we are set to hear from a handful of MPC members in the coming days, including Governor Bailey, and it will be intriguing to hear their view on last week’s nasty inflation shock and bumper retail sales figures.
We suspect that the “gradual and careful” stance towards easing will be reiterated once more, and most committee members are likely to pour cold water over the possibility of another cut any time soon (markets are not fully pricing in the next rate reduction until November).
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