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Sterling Hits 10-Month Lows on Weak UK Inflation Data

Sterling hits 10-month lows on weak UK inflation data

Investing.com - The pound fell to the lowest levels in 10 months against the broadly stronger dollar on Wednesday, as unexpectedly weak UK inflation data diminished chances for an August rate hike by the Bank of England.

GBP/USD hit a low of 1.3011, the weakest since Sept. 5, 2017 and was at 1.3039 by 05:06 AM ET (09:06 AM GMT), off 0.54% for the day.

Sterling slid to the day’s lows after data showing that inflation in the UK rose at a slower than expected rate in June, adding to the Bank of England's dilemma as it considers whether to raise interest rates next month.

The Office for National Statistics reported that the annual rate of inflation rose by 2.4% in June, matching May's figure which was a one-year low and falling short of expectations for an increase of 2.6%.

Underlying inflation rose by 1.9% on a year-over-year basis, slowing from 2.1% in the previous month and missing forecasts of 2.2%.

Consumer prices were flat for the month in June, down from 0.4% a month earlier and compared to forecasts of 0.2%.

The inflation figures came a day after data showing that wage growth in the UK slowed to its weakest rate in six months in the three months to May, despite record employment.

With inflation outstripping wage growth consumers are facing a cost of living squeeze, potentially making an August interest rate rise less likely.

Sterling was already on the defensive after falling almost 1% against the dollar on Tuesday amid a fresh bout of Brexit uncertainty following a series of crunch votes in the UK parliament, with Prime Minister Theresa May facing threats from both sides of the Brexit divide.

Demand for the dollar continued to be underpinned as optimistic comments from the head of the U.S. Federal Reserve reinforced expectations that the central bank is on track to keep gradually raising interest rates.

Fed Chairman Jerome Powell gave an upbeat assessment of the outlook for the U.S. economy on Tuesday and downplayed the impact of uncertainty over U.S. trade policy on the outlook for additional rate hikes.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.34% to 95.04, within close reach of the eleven-month high of 95.25 reached in late June.

Sterling hit four-month lows against the euro, with EUR/GBP hitting a high of 0.8923, before pulling back slightly to trade at 0.8912.

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