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UK pound hits $1.31 ahead of inflation data

Sterling to dollar: “hold my drink.” Well, maybe.

After an unusually active Asian session in which the dollar fell sharply across the board, it is now time for the pound to step up ahead of crucial inflation data due at 9.30.

The pound was at $1.31 as UK trading got into gear, up from $1.3050 late in the New York day. On Monday it reached $1.312, a 10-month high.

The dollar livened up Asia trading when it dropped sharply across the board on the news that two more Republican senators will not back their party’s latest effort to repeal Obamacare, arguing that the proposals released last Thursday don’t go far enough.

But in Europe, all market eyes are on the monthly UK consumer price data with the expectation being that recent increases in prices stalled in June – which would ease fears that the Bank of England is poised to raise rates following a series of hawkish comments.

“As both BoE governor Carney and the central bank’s chief economist [Andy] Haldane just recently explained that there is limited appetite for further rising inflation, we expect any currency reaction to today’s data to prove highly sensitive,” said Manuel Oliveri, strategist at Credit Agricole.

The key numbers to watch for are headline inflation, which is expected at 2.9 per cent, and core inflation, at 2.6 per cent. Both those would represent unchanged levels from May, where the headline reading represented a four-year high.