By Olga Cotaga
LONDON (Reuters) – Sterling remained driven by the weaker U.S. dollar on Wednesday in thin August trading, even though British inflation jumped unexpectedly last month to its highest since March.
Last trading at $1.3259, up 0.2% on the day
Against the euro, sterling was flat at 90.14 pence ().
UK annual consumer price inflation rose to 1.0% in July from 0.6% in June, as clothing stores refrained from their usual summer discounts as they reopened after the coronavirus lockdown. That was above all forecasts in a Reuters poll of economists that had pointed to an unchanged rate.
“The Bank of England is unlikely to draw conclusions just yet from this data … (therefore) market reaction is likely to remain muted,” said Derek Halpenny, head of research at MUFG.
” is now above pre-COVID levels although much of that is dollar related. The BoE trade-weighted index remains weaker,” Halpenny said.
“That’s a reflection of continued uncertainties like the potential for the BoE adopting negative rates and the outcome of the trade negotiations between the EU and the UK.”
Six-month risk reversals – the difference between put and call options – suggest money managers prefer selling the pound over buying it in the period which incorporates Britain’s clear exit from the European Union in December.
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