LONDON: Sterling rose from a 5-1/2-year low against the dollar on Tuesday after data showed Britain's ultra-low inflation rose to its highest rate in almost a year in December, beating economists' expectations.
The next focus for investors is a speech by Bank of England Governor Mark Carney at 1200 GMT, which is expected to address interest rates. Carney said six months ago a decision on whether to raise rates would probably become clear around now, but that was before a series of setbacks to British and global growth.
Consumer prices inched up 0.1 percent on the month to take the annual rate of inflation to 0.2 percent, the Office for National Statistics said. That compared with economists' expectations for a flat reading and 0.1 percent gain respectively.
The pound rose to $1.4340 after the data, having traded at $1.4320 just before its release, before easing back to $1.4324. That still left it up 0.6 percent on the day but less than one US cent away from a 5-1/2-year low hit on Monday.
Against the euro, sterling strengthened to 75.825 pence , up from 76 pence just before the data, and up 0.9 percent on the day.
"We don't think it changes the picture for the BoE," said Barclays currency strategist Nikolaos Sgouropoulos. The British bank last week pushed back its expectation for when the BoE will start to raise interest rates to the fourth quarter of this year, having previously bet on the first quarter.
On Monday the BoE's newest policymaker, Gertjan Vlieghe, said he would take a "patient" approach to raising rates and might even favour a cut if a slowdown in Britain's economy worsened. He said he had been struck by the failure of wage growth to pick up despite a fall in unemployment.
That underscored how over the past six months, the mood at the BoE has shifted away from signalling that a first rate rise since the financial crisis was on its way.
"The benign inflation outlook will give Governor Carney limited scope to strike a more hawkish tone in his speech," said ING currency strategist Viraj Patel. "We suspect that he will echo the cautious comments made by external MPC member Vlieghe yesterday."
The pound has skidded almost 10 percent against the dollar over the past six months, with around half of that fall coming in the last month alone, as investors have pushed back their bets on rate rises. Against the euro its decline has been even more rapid: an 8 percent fall in the same number of weeks.
Growing worries about a vote on Britain's membership of the European Union have also soured sentiment on the pound. Some investors reckon the referendum could come as early as June and are stepping up bets against sterling in the derivatives market.
Comments
Comments are closed for this article.