Sterling rose to its highest level in seven months against a basket of currencies and its strongest since early December against the euro on Tuesday, boosted by firmer-than-expected UK inflation data. The UK annual consumer prices index fell to 2.2 percent in May from 2.3 percent in April, still above the Bank of England's 2.0 percent target and more than analysts' forecasts for a bigger fall to 2.0 percent.
The news encouraged the belief that the risk of deflation in the UK economy is now very low. It also followed a raft of UK data recently which have fanned the belief that the economy is on the road to recovery. "Sterling gains were already fuelled by a modest improvement in equities, and this added momentum after the inflation data," CMC Markets analyst Ashraf Laidi said.
The UK currency pared some gains, however, as news that US industrial production slid a steeper-than-expected 1.1 percent in May dampened optimism that the global economy is over the worst. This caused perceived higher risk currencies such as sterling to come off their earlier highs. UK shares remained up 0.3 percent, though they too pared their earlier gains.
At 1438 GMT, sterling rose 0.8 percent against the dollar to $1.6429, having earlier risen more than one percent to a session high $1.6507. The euro was down 0.1 percent against the pound at 84.50 pence, not far from an earlier low of 84.33 pence, its weakest since December.
These gains took sterling to a seven-month high against a basket of currencies, with its trade-weighted index rising to 84.3. So far this month, the euro has fallen around 3 percent against sterling, leaving it on course for a quarterly drop of more than 8 percent, which would be the biggest quarterly fall against the pound since its inception.
Sterling's recent strong gains reflect the belief that the UK economy is on the road to recovery and is set to outperform the eurozone, with many predicting a return to growth by the end of the year.
Comments
Comments are closed.