Sterling firms after inflation's surprise surge

Wednesday,   16-Jun-2021   01:55 PM (IST)

Sterling firmed on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2.0% target in May raising some concerns that policymakers may start signalling a shift in policy thinking if prices extend their rising streak. Inflation hit 2.1% in May, outpacing forecasts and looks set to rise further as the country re-opens its economy after its coronavirus lockdowns. Against a broadly steady dollar, the British pound rose 0.2% to $1.41090, homing in on a 2021 high of $1.4250 hit at the start of June. Against the euro, the British currency rose 0.25% to 85.94 pence. While the rise in inflation is largely driven by local factors, the Bank of England will be keenly watching whether a stronger currency will help ease price pressures. The British currency is one of the best performing currencies versus the dollar this year with a net 3.3% rise so far in 2021. In response to the data, two-year British government bond yields rose nearly one basis point to 0.11% to a one-month high.