Sterling fell against the dollar after data showing the highest U.S. inflation in 13 years sent the greenback surging to a six-day high. The U.S. Labor Department said that the consumer price index increased 0.9% last month and the largest gain since June 2008. The data which prompted markets to bring forward their U.S. rate hike expectations weighed on other currencies. The currency flatlined against the euro at 85.46 pence.
The pound eased earlier in the day from the two-week highs hit, when the Bank of England scrapped pandemic-era curbs on British banks’ dividend payments. The BOE added it was keeping an eye on the housing market and how fast price rises translated into household indebtedness. Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said that sterling had reacted to the negative references in the BoE FSR press conference. He also added that Bailey has underlined heightened sensitivity to higher borrowing in weaker parts of the economy in addition to warning regarding potential threats to asset price valuations.
Sterling has been among the top performing G10 currencies this year. But the investor confidence has been hit by a surge in COVID-19 Delta variant cases. Commerzbank wrote in a note to clients stating that the investors seems to be torn between optimism fueled by the imminent lifting of all remaining corona restrictions in England and concerns about the spread of the Delta variant.