Pound Leads Gains Among G-10 Currencies on U.K. Inflation Boost

(Bloomberg) -- The pound strengthened the most among Group-of-10 currencies after data showed U.K. inflation accelerated to the fastest pace in more than two years.

Sterling, which has seen a gradual move higher since the flash crash on Oct. 7, is still one of the worst performers in the past six months, a period that encompasses the slide after Britain’s shock decision to leave the European Union. While the currency dropped to its lowest level in three decades after the Brexit vote, economic data have proven resilient and lent support since then.

The pound was up 0.3 percent to $1.2715 as of 12:57 p.m. in London, extending the 0.9 percent climb on Monday. It strengthened 0.5 percent to 83.44 pence per euro.

“The market is still in the process of reducing hedges” that were put on after the Brexit vote to protect against feared losses in the pound, said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. This was “in part on the basis that macro data is outperforming albeit low expectations. However, gains are limited as concerns remain over a possible no delay on Brexit. If Brexit moves to a March release then the pound will tank again.”

• U.K. consumer price index year-on-year jumped to 1.2 percent in November, higher than economists’ estimate of 1.1 percent and the previous reading of 0.9 percent
• Citigroup Inc.’s U.K. Economic Surprise Index has been above zero since June. A positive reading indicates data have been beating analysts forecasts
• The pound was also supported by comments on Monday when Chancellor of the Exchequer Philip Hammond suggested that the idea of a transitional period to cushion Britain’s exit from the EU was gaining support among ministers
• “That feeds into the momentum seen over the last month or so” when an easing in fears about a hard Brexit allowed the pound to rebound from a very undervalued level, said Lee Hardman, a London-based foreign-exchange strategist at MUFG
• Inflation data are, however, unlikely to be a big market driver for sterling, according to currency strategists including Manuel Oliveri at Credit Agricole in London, as the Bank of England has said it would look through increased upside risks to price pressures

• “When it comes to the GBP, we remain of the view that rallies should be sold, against both the EUR and the USD,” they wrote in a note before the data release

• Focus will shift to unemployment, retail sales data later this week and also the very last policy decision for this year from the BOE

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Anil Varma, Keith Jenkins