LONDON – Sterling hovered near a 3-1/2-week low on Wednesday after UK inflation data showed a sharper slowdown than expected.
The pound was little moved by the numbers, however. Investors believe it will have little bearing on the rising trend for inflation, and the currency fell on Tuesday after a jump in the dollar.
Analysts said investors were focused more on the state of the labour market — a key determinant of future inflation — as a guide to when the Bank of England will tighten monetary policy than on current inflation rates.
Derek Halpenny at MUFG said Wednesday’s strong labour market data was “perhaps more important as it revealed another strong print that in our view reinforces the prospect of a rate hike cycle commencing in the second half of next year.”
The pound was last at $1.3742, down 0.1% on the day and close to Tuesday’s level of $1.3726, the lowest since July 23.
Against the euro, the British currency dropped 0.1% to 85.32 pence.
British inflation fell to the Bank of England’s 2% target last month, a slowdown that economists said was most likely a blip as the reopening of the economy after lockdown drives prices higher.
Economists polled by Reuters had expected the data to show a 2.3% rise in consumer prices in July following a 2.5% rise in June.
