Forex News – Sterling jumps against dollar after US inflation data

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Sterling jumped by 130 pips against the dollar after the release of U.S. inflation data, which showed that the core consumer price index rose less than forecast, by 0.1 percent. A 0.2 percent rise was expected.

Decreasing inflation also decreases the likelihood that the Federal Reserve will tighten monetary policy, and will therefore maintain the current low interest rates. This reduces dollar demand.

A softer dollar helped lift the British pound, which rose sharply due to a lack of domestic UK data today, and the pound was easily swayed by dollar movements.

GBPUSD surged to a high of 1.5859 by 14:15 GMT, versus a pre-US data level of 1.5729. GBPUSD soon eased on profit-taking after a sharp rally, and will likely remain little changed ahead of the weekend.

Meanwhile, against the yen, sterling surged to a nine-month high. GBPJPY hit 132.41.

Sterling strength may be unsustainable due to the uncertain  outlook for the UK economy,  with growth expected to remain sluggish. Just this week, Fitch cut the UK outlook to negative from stable, citing downside risks to the British economy and warned of the risk of losing the coveted triple-A rating.