Earlier this morning, November inflation numbers out of the U.K. were announced with both headline and core inflation figures coming-in above expectations. Headline CPI for the month of November printed at an annualized 1.2% figure versus expectations of 1.1% while Core CPI came in at 1.4% versus the expectation of 1.3%. And while these numbers are still both well-below the Bank of England’s inflation target of 2%, the fact that higher prices are already showing-up after the ‘sharp repricing’ in the British Pound in October exposes the fact that inflationary forces may be gathering momentum in the British economy.

Which brings up a widely-contested issue: What moves currency prices? Can it all be boiled down to just inflation and employment prints? Or perhaps just a Central Bank’s feelings for what they might be doing in the future? No – prices are driven by supply and demand. Now, supply and demand may be impacted by any of the above forces, along with a litany of others; but regardless of the reason or motivations, if there are more buyers than sellers in a market, prices are probably going to go up and if there are more sellers than buyers, prices are probably going to go down.

In the British Pound, there was an absolute dearth of demand around the Brexit referendum. After all, the world had never seen an economy divorce from a larger, supra-national economy before; nobody really knew how any of this was going to work, and by many accounts, we still don’t as it appears that we’re months away from Article 50 being triggered to actually begin Brexit negotiations. But when the Bank of England offered extreme-dovish policy in the wake of Brexit, coupling that brute uncertainty around the referendum with ultra-loose monetary policy implications, there was very little reason for anyone to want to buy GBP. This is what led to the flash crash on October the 6th; there was simply no demand, with few meager bids to counter the selling pressure on a Friday – and prices collapsed as overarching supply diminished what little demand might have existed.