Pound Slides From 10-Month High as U.K. CPI Unexpectedly Falls

(Bloomberg) -- The pound dropped from a 10-month high versus the dollar as U.K. inflation unexpectedly slowed in June, reducing the chances of an imminent interest-rate increase by the Bank of England. The yield on benchmark 10-year government bonds dropped to the lowest level since June.

Sterling weakened versus all of its 16 major peers after annual consumer-price inflation slid to 2.6 percent last month, below the 2.9 percent forecast by economists in a Bloomberg survey and the four-year high reached in May. The U.K. currency climbed earlier to its highest level against the dollar since September after the stalling of U.S. President Donald Trump’s health reform cast doubt on any future deregulation and tax measures.

The slowdown in inflation will support the arguments of the members of Monetary Policy Committee who contend that the U.K. economy is weakening while the pick-up in inflation may only be temporary. In the money markets, traders don’t expect a 25-basis-point rate hike until August next year at the earliest, with the chances of a hike this year below 50 percent.

“The Bank of England is the winner of the day,”’ said Jordan Rochester, a foreign-exchange strategist at Nomura International in London. “We could break below $1.30 again, just because those guys who put their short-term longs on might re-position.”

• GBP/USD -0.2% to 1.3024, after climbing to 1.3126, highest level since Sept. 16 
  • Solid support at 1.2984-75 may reignite upside; only below 1.2812 would neutralize the broader upside bias
• EUR/GBP +0.7% to 0.8851
• U.K. Inflation Rate’s Unexpected Drop Takes Pressure Off BOE
• “I tend to feel more bearish than bullish and the CPI helped that case,” says Steve Barrow, London-based head of Group-of-10 currency strategy at Standard Bank. ‘The Bank of England is barking up the wrong tree when it comes to raising rates”
• Brexit talks get down to detail as May seeks to silence feuds
• Yield on 10-year gilts -4bps to 1.23%, lowest level since June 30

--With assistance from Sejul Gokal

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net.

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins