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Quite against movements of late, we have seen the Pound strengthen today on the back of the Bank of England’s inflation survey which showed inflation expectations for 2010 were slightly higher than previously expected.

But why did this help strengthen sterling when the Pound was on such a poor run? Because higher inflation generally leads to increases in interest rates, and high interest rates attract investors. If investors start to gain confidence in the UK once again then typically we would see GBP exchange rates rise as the UK Pound becomes more sought after.

I however, think these gains will be short lived, and political uncertainty will come back to haunt the Pound in the very near future.