By Yasin Ebrahim

Investing.com – The pound could mount a further recovery against euro on Wednesday, and is poised for wild swings as data showing inflation remains red-hot could renew bets on Bank of England rate hikes.

Increased by 0.7% to $1.2020

If the inflation data come in hotter-than-expected – as has been the case in the recent reports – the “BoE rate hike expectations could be fueled again, allowing sterling to recover somewhat further against euro,” {{Commerzbank said in a note}}.

The U.K.’s core inflation and consumer price index are expected to rise by 0.7% and 6.2%, respectively, in February. It is also expected to be the fastest growth rate in 20 years.

A hotter than expected print could force investors to unwind bets of a less trigger happy Bank of England following the central bank’s dovish rate hike earlier this month.

The Bank of England hiked rates by 50 basis points in March, but “signaled a modest tightening of interest rates over the coming months,” Commerzbank said.

The central bank acknowledged an inflation problem and took steps to lower price pressures. It raised its benchmark rate by 1% to prevent future pandemics.

The central bank also worries that rising inflation may be a helpful tonic for its inflation problems by reducing consumer demand sufficiently to permit price pressures from slowing down.

The BOE “sees risks that in the end, high inflation might weaken private consumption which in turn could weaken price pressure. That is why it wants to implement cautious rate hikes,” Commerzbank added.

But whether inflation comes in hot again, or underwhelms, it “might well have the ability to move sterling considerably,” Commerzbank added.