Britain's pound slid on Tuesday to a five-day low after comments by Bank of England policymakers were interpreted by markets as dovish despite newly published inflation data in line with expectations. The pound fell half a percent on the day to as low as $1.3177 before inching back to 1.3181 by 1331 GMT.
Members of the Bank of England's interest rate-setting committee were speaking to parliament's Treasury Committee. Silvana Tenreyro, external member of the Monetary Policy Committee, said the upward pressure on inflation from sterling weakness will start to wane in the coming months. "Comments coming out uniformly signaled a dovish and cautious stance among policymakers and indicated a growing debate internally on the path for interest rates," said Neil Jones, Mizuho's head of currency sales for hedge funds in London.
Official data earlier in the day had showed Britain's inflation rate hit 3 percent, above the central bank's 2 percent target but in line with expectations. "The inflation data matched what we expected, especially in terms of the headline CPI and core CPI, so it had only a marginal impact on the cable," said Alvin Tan, an FX strategist at Societe Generale.
Tan said that a broadly stronger dollar had been helping the pound to outperform the euro on Tuesday morning. Speculators trimmed their long positions on the pound - bets that it would rise - in the week to last Tuesday, data showed. But they were net long on the currency for a third week running, having been short for almost two years. Traders will keep an eye on labour market data due on Wednesday and retail sales numbers on Thursday.
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