Sterling shrugs off UK inflation surge

Sterling steadied against the U.S. dollar and euro on Wednesday after data showed British inflation climbed to its highest rate in 40 years, but only slightly above forecast. The inflation data bolstered bets that the Bank of England will opt to raise interest rates by 50 basis points (bps) next month, but moves for sterling were limited because a 50 bps increase had been priced in, traders said.

Sterling edged 0.1% higher against the euro at 85.12 pence by 1504 GMT, having slipped in earlier trade to its lowest level against the single currency since July 7. Sterling was flat against the U.S. dollar at $1.1992, having climbed to an 11-day high on Tuesday.

Bank of England Governor Andrew Bailey said that a 50 bps increase in borrowing costs – unseen in Britain in a quarter of a century – was on the table but not “locked in”. Annual consumer price inflation rose in June to 9.4%, its highest since February 1982. That was up from May’s 9.1% and above the 9.3% consensus in a Reuters poll of economists.

“UK CPI came in only slightly above consensus … Today’s release will not be the key factor to tilt the August BoE policy decision in one direction or the other,” said Francesco Pesole, FX Strategist at ING. Sterling is likely to remain a function of dollar and euro moves, he added.

J.P. Morgan Asset Management market strategist Hugh Gimber said that, taken in aggregate with yesterday’s wage growth data, “it appears clear that the bar has been met for the Bank to increase interest rates by 0.5% in early August”. On Tuesday data showed Britain’s unemployment rate holding at 3.8% in the three months to May, while growth in regular pay picked up slightly to 4.3%, bolstering bets for a higher interest rate increase next month.

The central bank is expected to raise rates for the sixth time since December. Traders are also watching the race to replace British Prime Minister Boris Johnson.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)