Sterling slips versus euro

Sterling fell to a four-month low against the euro on Tuesday after a central banker's comments and below-forecast inflation reaffirmed expectations that the Bank of England would retain easy monetary policy. Short sterling strips rallied across the curve, after a lower-than-forecast rise in inflation, with markets now looking to Wednesday's release of the minutes of the BoE's July 3-4 meeting, when the bank is expected to have maintained its accommodative stance.
Particular attention would be paid to whether new Governor Mark Carney voted in favour of increasing the size of the BoE's 375 billion pounds of asset purchases. The bank kept its stimulus programme on hold at the meeting. The euro was up 0.6 percent at 86.98 pence, having hit 87.075 pence, which was its highest since mid-March. Against the dollar, sterling was last at $1.5097, having weakened to as low as $1.5045 after the inflation data. It stayed above initial support of $1.5028, which was Monday's low.
"The BoE minutes are going to be relatively dovish, so this could be pretty bearish for sterling," said Craig Erlam, market analyst at Alpari. He said that $1.48 was going to be key as it is a massive support level and if that is broken the next major support level is all the way down at $1.42. Strategists said the minutes would be a step towards the BoE preparing markets for a pledge to keep rates low until the economy recovers. The bank is widely expected to issue that guidance in its Quarterly Inflation Report early next month.
In a reflection of heightened expectations that the BoE's ultra-loose monetary policy would persist, short sterling rate futures were up strongly across the strip, rising between 6 to 12 ticks in contracts expiring after March 2014. March 2014 contracts were up 5 ticks to 99.41 and September 2016 contracts were up 12 ticks to 98.37. Sterling came under pressure after BoE policymaker Paul Fisher said discussions at the central bank were more about providing stimulus rather than how to exit it.
The pound also slipped after data released earlier on Tuesday showed British inflation had risen to 2.9 percent in June, which was less than the 3.0 percent forecast, potentially giving the BoE some room to ease policy further. FOREX.com's research director Kathleen Brooks, however, warned that inflation was still at its highest since April 2012 and if producer prices fed into the consumer price index later this year "then it could be a hurdle to more QE down the line.