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Forex - Sterling Falls to Day’s Lows on UK Inflation Data

Published 14/11/2017, 10:14
Updated 14/11/2017, 10:20
© Reuters.  Sterling falls to day’s lows on UK inflation data

© Reuters. Sterling falls to day’s lows on UK inflation data

Investing.com - The pound fell to the day’s lows on Tuesday after data showing that UK inflation held steady at its highest level in five-and-a-half years in October, amid expectations that the consumer price index would have risen even higher.

GBP/USD was down 0.18% to 1.3092 by 04:52 AM ET (09:52 AM GMT) from around 1.3116 earlier.

The consumer price index remained steady at 3.0% in October, matching September’s figure the Office for National Statistics reported. Economists had expected an increase to 3.1%.

The ONS said food prices jumped across “all main classes of product” including dairy products, which have seen recent wholesale shortages. Rising food prices offset a fall in the cost of fuel.

The report underlined concerns over a squeeze on the cost of living in the wake of the 2016 Brexit vote, as the weak pound drives up import costs.

At 3% inflation is outstripping wage growth, which rose by just 2.1% over the past year.

Earlier this month the Bank of England said, as it raised interest rates for the first time in almost a decade, that it expected inflation to peak at 3.2% in October before slowly falling back to just above its 2% target in three years’ time.

Underlying inflation, which strips out food and fuel costs rose 2.7% last month, matching the September’s reading, compared to forecasts for 2.8%.

The retail price index, which is used to calculate payments on government bonds and many commercial contracts, rose to a near six-year high of 4.0%.

The report also showed that the house price index rose 5.4% in October, above forecasts for a gain of 5.2% after a 4.8% increase a month earlier.

The euro rose to three-week highs against the pound, with EUR/GBP advancing 0.53% to 0.8941.

The euro was boosted by data showing that Germany’s economy grew 0.8% in the third quarter thanks to strong trade and investment figures.

A separate report showed that German economic sentiment improved again in November, bolstering the outlook for future growth.

At the same time another report confirmed the euro zone economy grew 2.5% in the third quarter.

Sterling had ended the previous session sharply lower amid concerns over Theresa May’s ability to remain on as British prime minister.

The two-day parliamentary debate on the Brexit bill was due to get underway later Tuesday and will take place against a backdrop of heightened political uncertainty.

As many as forty members of parliament have agreed to sign a letter of no confidence in the prime minister according to weekend newspaper reports, setting the stage for a formal leadership challenge.

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