Sterling slipped on Tuesday before inflation data that is expected to show an uptick in prices, though it is unlikely to be big enough to cause much concern to the Bank of England which wants to keep monetary policy accommodative.
The consumer price inflation rate is expected to edge up to 0.7 percent year-on-year in August from 0.6 percent year-on-year in July. This is, however, slightly below the 0.8 percent annual rate forecast by the BoE staff at the time of the August Inflation Report.
Sterling was down 0.15 percent at $1.3310 while the euro was a tad firmer at 84.30 pence
“We doubt sterling moves on inflation data will stick,” said Josh O’Byrne, currency strategist at Citi. “The (BOE’s) Monetary Policy Committee have indicated a preference for first stabilising demand and a willingness to overshoot the 2 percent (inflation) target.”
The pound dipped last week but has broadly done well in the past month as a handful of economic indicators suggested the British economy was holding up better than expected after June’s vote to leave the European Union.
The pound had been on a winning streak until last Tuesday, hitting a seven-week high of $1.3445 that left it more than 5 percent up from a three-decade low plumbed in July soon after the referendum.
Analysts said there were signs that the pound’s rally was probably running out of steam. Wages, jobs and retail sales data are all due this week and traders said disappointing numbers could see sterling come under pressure.
Also, the BoE meets on Thursday and is not expected to announce new measures, having cut interest rates to record lows and reintroduced an asset-purchase programme last month. Traders expect it to stick to a dovish bias after last week Governor Mark Carney kept the option of further easing on the table.
“Sterling may be less sensitive to potential positive surprises and vulnerable to losses in the event of data disappointments ahead of the BoE meeting,” analysts at Credit Agricole wrote in a note.
“Indeed, we suspect that the MPC will likely stick to its very cautious assessment of the economy and fairly dovish policy outlook despite the latest more upbeat activity data.” (Reporting by Anirban Nag; Editing by Andrew Heavens)