Sterling soared by three-quarters-of-a-cent to new 15-year highs just north of 2.0000 following the 08:30GMT disclosure that annualized UK CPI spiked to 3.1% in March, from 2.8% in February. It was forecast unchanged. The CPI shock triggered an explanatory letter from BoE Governor Mervyn King to Chancellor Gordon Brown (www.bankofengland.co.uk). Brown's letter of response has been published on the UK Treasury website (www.hm-treasury.gov.uk).
A raft of exotic option exposure was located at 2.0000. Further option barriers are tipped at 2.0025, 2.0050, 2.0100 (Sep 1992 high), 2.0150 and 2.0200+. Corporate offers are touted circa 2.0000.
The UK CPI surprise makes next month's expected 25bp UK base rate rise to 5.5% a done deal (May 10). UK interest rate futures are pricing in another 25bp hike to 5.75% in Q3, with potential for a further 25bp increase beyond.
US March inflation figures will be unveiled at 12:30GMT, alongside March housing starts. Core CPI is forecast +0.2% m/m, +2.6% y/y. Industrial production and capacity utilization data ensues at 13:15GMT.
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