Pound Hits Four-Month Low after UK Inflation Slows Down

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Pound Hits Four-Month Low after UK Inflation Slows DownThe pound touched its lowest level in four months against the dollar after data showed that UK inflation declined more than expected in July, creating more room for the Bank of England to wait a little longer before hiking interest rates.

The pound plunged 0.7 percent to trade at $1.6620 as of 4:18 p.m. in London after earlier declining to $1.6612, its weakest level since April 8. The UK currency tumbled 0.3 percent to 80.14 pence per euro.

“The Bank of England is an inflation-targeting central bank and inflation is turning out softer than they expected,” Paul Robson, a London-based senior foreign-exchange strategist at Royal Bank of Scotland Group Plc, told Bloomberg News. “That might just see a more negative shine to sterling over the coming days. Markets are pushing back from previously pricing a November rate hike back into the early part of next year.”

The Office for National Statistics reported that consumer-price inflation declined to 1.6 percent in the year through July, down from 1.9 percent in June. The central bank is expected to release the minutes of its August monetary policy meeting tomorrow. BOE’s officials retained the target interest rate at a record-low 0.5 percent.

Yield on the 10-year gilt declined 0.03 percentage point or three basis points, to 2.40 percent. The rate rose 10 basis points on Monday, the fastest gain since September. The 2.25 percent bond that matures in September 2023 jumped 0.255 to 98.82.

The return on gilts has averaged 6.5 percent in the year through Monday, data compiled by the Bloomberg World Bond Indexes shows. U.S. Treasuries have returned 4.1 percent while German bunds have earned 6.5 percent. 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