Pound Halts Five-Day Rally against the Dollar on Declining Inflation Rate

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Pound Halts Five-Day Rally against the Dollar on Declining Inflation RateThe sterling ended its five-day rally versus the dollar after British inflation declined to a 4 ½ year low in May, lowering speculation that the Bank of England will hike interest rates earlier than expected.

The pound fell almost 0.1 percent to $1.6975 as of 11:10 a.m. in London after earlier surging to $1.7011, the most since August 6, 2009. The U.K. currency remained slightly unchanged at 79.91 pence a euro after rising to 79.59 pence on Monday, the most since October 1, 2012.

“The market has been fixated on the shift in tone from governor Carney and some comments from the usually dovish Miles overnight,” Daragh Maher, a London-based currency strategist at HSBC Holdings Plc told Bloomberg. “But the inflation data has surprised on the downside this morning suggesting the BOE has a little bit more room to wait before hiking. The pound is understandably lower as a result.”

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The pound has advanced 8.9 percent over the past 12 months, making it the second-best performing currency after New Zealand dollar out of the 10 advanced-economy currencies monitored by Bloomberg Correlation-Weighted Indexes.

UK consumer prices grew 1.5 percent in May, the slowest since October 2009, reported the Office for National Statistics. Analysts surveyed by Bloomberg had expected inflation rate to average 1.7 percent in the month, though the figure is still below the Bank of England’s target of 2 percent.

The yield on two-year gilts rose to the strongest level since 2011 after key BoE official David Miles signaled that the minutes of the central bank’s meeting held on June 5 will reveal that the bank is heading closer towards hiking interest rates. The yield rose 0.01 percentage point, or one basis point, to 0.91 percent after earlier rising to 0.93 percent, the strongest level since June 2011. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com