Inflation surprised traders today 20 Mar 07

Inflation was the key mover of currency prices today.  Both the British pound and the Canadian dollar rallied sharply on news that consumer prices (CPI) for the month of February rose more than expected; CPI was up 2.8% in the UK and 2.0% in Canada. 

These numbers may set stage for more rate hikes from the Bank of England and the Bank of Canada.  Many of the currency traders expected each of these banks to remain on hold for the rest of the year.  It’s another example of how quickly surprise—defined as the real world playing out against expectations of real people in the trading world—can move currency prices over the near term.   

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