Sterling rises against the dollar amid lower inflation in the UK

The sterling rose against the dollar on Wednesday amid a general decline in the dollar and an unexpected drop in UK inflation for the first time in a year.

 

The pound rose 0.6% to $1.1559, off a 30-year low of $1.14070 hit last week.

 

The dollar fell after the Japanese yen rose on reports that the Bank of Japan held a rate check, apparently preparing for foreign exchange intervention. Politicians in Tokyo have also stepped up warnings about recent sharp falls, but most analysts doubt that outright buying of the yen will be undertaken anytime soon.

 

The US dollar index, which measures the exchange rate against six major counterparts, including the yen, fell 0.4% to 109.42. Last week it reached a bidecennial peak of 110.79.

 

Lower fuel prices meant UK inflation eased to 9.9% in August, data showed on Wednesday, providing some breathing room for households and the Bank of England after inflation hit a 40-year high a month earlier.

 

Sterling has been hard hit this year by soaring inflation, a looming recession and fears that tax cuts and increased government spending under the new government could add to price pressures.

 

The depreciation of the currency, which fell more than 15% against the dollar in 2020, is also a headache for the Bank of England, as it increases the cost of imports and could cause even more import inflation.

 

ING analysts wrote that due to the inflation data, they expect the BoE to raise interest rates by 50 basis points next week, and the general environment will be "negative for sterling".

 

"The slowdown and weakening equity markets should leave sterling on the losing end," they said.