Sterling holds steady ahead of UK inflation data

The pound held steady on Wednesday ahead of inflation data that will provide further evidence on the health of the UK economy, with a potential rate cut at the end of the month in focus.

Investors will be watching the consumer price inflation (CPI) numbers at 0930 GMT as Britain’s currency has been under pressure in recent days after several policymakers, including Bank of England governor Mark Carney, have hinted they could vote for a rate cut unless economic data improves significantly.
The pound was flat against the U.S. dollar in early London trade at $1.3019. It was also steady against the euro at 85.50 pence.
Bank of England interest rate setter Michael Saunders said on Wednesday he was sticking to his view that borrowing costs should be cut because of weakness in Britain’s labour market and its broader economy.

“With limited monetary policy space, risk management considerations favour a relatively prompt and aggressive response to downside risks at present,” he said.
Worse-than-expected UK growth and industrial production data earlier in the week bolstered rate cut expectations.
Money markets are now pricing in a 49% chance of a rate cut later this month, compared with just 20% on Friday.
Year-on-year inflation is expected to hold at last month’s level of 1.5%, according to a Reuters poll.

The data “could have a slight impact on the market pricing on the Bank of England, but I do think the growth picture is much more important. If we are to see any more comments from the Bank of England, that is what is the key for BoE cutting or not in January,” said Morten Lund, senior FX strategist at Nordea
But “if we get a miss of inflation of by perhaps 0.2 percentage points, perhaps we could see a clear reaction in the market, moving lower and yields moving lower,” he said.

Source: Reuters

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