Pound rises to nine-month high on weak US inflation

Bloomberg

The pound rose to its highest since September as weak inflation data in the U.S. weighed on the dollar, while traders are increasingly betting on tighter monetary policy in the U.K.
Sterling, which crossed $1.30 and rose against all of its major peers, has largely defied signs that the UK economy is slowing, with some Bank of England policy makers calling for higher rates. Prospects of another Federal Reserve hike meanwhile have fallen this week, with U.S. consumer price data falling short of analyst expectations, and Chair Janet Yellen striking a more dovish tone over two days in front of lawmakers.
“The outperformance of the pound does stand out,” said Lee Hardman, a London-based foreign-exchange strategist at MUFG, which forecasts the pound rising to $1.35 by the end of the year. “We think the Bank of England will be the next central bank to raise rates.”
Short EUR/GBP “continues to look attractive even after the move lower and we continue to see the risk reward being in long GBP,” analysts at Nomura,
including Jordan Rochester, write in a client note.
“Rather than cutting our losses and stopping out of our EUR/GBP leg, we see more than enough reason to expect an improvement in sterling’s fortunes, or if anything a bias to expect further deterioration in EUR against GBP” into next week’s European Central Bank meeting.
Nomura analysts say “expectations of a hawkish shift are high” from the ECB, without which the euro could weaken versus sterling. They also
expect the BOE to raise rates in August.