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Sterling falls after weaker than expected inflation

Sterling fell on Wednesday after British prices in August grew at their slowest pace since late 2016, while concerns about whether a last-minute Brexit deal was achievable also weighed on the currency.

Prices of goods and services paid by consumers rose at an annual rate of 1.7 per cent in August after a 2.1 per cent increase in July, official data showed.
A Reuters’ poll of economists had expected a rate of 1.9 per cent.
The lower-than-forecast rate will be a welcome boost for British consumers and comes ahead of the Bank of England’s monetary policy meeting on Thursday. The BoE targets a two per cent inflation rate.
“While the data will likely cause a knee-jerk sell-off in sterling and stoke some volatility, market focus and long-term direction will continue to be driven by parliamentary and Brexit developments,” said Sam Cooper at Silicon Valley Bank.
The pound fell 0.3 per cent to 1.2457 dollar from trading around 1.2480 dollar before the inflation data was released.
That followed a rally to a six-week high on Tuesday of 1.2528 dollar on the back of optimism that Prime Minister Boris Johnson was trying to secure a Brexit deal with the European Union before the Oct. 31 deadline.
“The pound continues to benefit from building optimism over the potential for a last-minute Brexit deal and more likely a short Article 50 extension which have both helped ease more immediate no-deal Brexit risks,” MUFG analysts said in a research note sent to clients.
Investors have been reassured by British lawmakers voting to block a no-deal Brexit on Oct. 31, helping sterling to rally strongly over the past week.
But there was some caution on Wednesday as European Commission President Jean-Claude Juncker said the risk of a no-deal divorce was “very real”.
Against the euro sterling was unchanged at 88.585 pence.
The BoE is expected to keep interest rates at 0.75 per cent on Thursday when it meets. Policymakers have said rates could rise or fall in the event of a no-deal Brexit.
The Financial Times reported that the appointment of Governor Mark Carney’s successor was set to be pushed back until after a forthcoming election, which Johnson wants to call

 

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