Pound slides as U.K. inflation unexpectedly stalls
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The U.S. dollar strengthened this morning after July retail sales data beat expectations early Tuesday. The Empire State Manufacturing Survey also came in stronger versus the consensus, painting a better picture overall.
Retail sales came in 0.6% on the month, compared with 0.4% expected, or 0.5% up when excluding auto fuel versus the same expectations. Meanwhile, the Empire State Manufacturing Index, measuring business conditions for August, read 25.2 compared with an expected 11 and 9.8 before.
The ICE Dollar Index , which measures the greenback against a basket of six currencies, rose 0.7% to 94.0370 compared with 93.7920 before the release.
The euro weakened 0.7% against the dollar in response, dropping to $1.702 compared with $1.782 late on Monday in New York.
"Any rebound of such magnitude will be seen as a relief and could carry USD/JPY through the 111.00 level, but if the data misses the mark again -- or, worse, prints negative, the pair could once again tumble toward 109.00 as the day proceeds," said Boris Schlossberg, managing director of FX strategy, at BK Asset Management, in a note before the data release.
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The dollar bought Yen110.77 ahead of the data, up from Yen109.63 on Monday.
The U.S. currency also continues to benefit from abating fears about a nuclear war between the U.S. and North Korea. Tensions eased further on Tuesday after North Korean leader Kim Jong Un decided not to launch a threatened missile attack on U.S. territory Guam (http://www.marketwatch.com/story/north-korea-steps-back-from-plan-to-launch-missiles-at-guam-2017-08-14), according to state media.
The pound, on the other hand, tumbled on Tuesday after U.K. inflation came in softer than expected and quelled speculation the Bank of England would soon raise interest rates.
Sterling bought $1.2863, down from as high as $1.2971 earlier in the day and $1.2964 late Monday in New York. Against the euro, the pound stood at EUR1.0983 up from EUR1.0956 earlier and compared with EUR1.1004 late on Monday.
The downbeat mood came after the Office for National Statistics said British inflation remained unchanged at 2.6% in July (http://www.marketwatch.com/story/uk-consumer-inflation-remains-at-26-in-july-2017-08-15). Analysts had expected a 2.7% reading. Consumer prices in the U.K. have moved rapidly higher since the Brexit referendum in June last year, as the drop in sterling has made imported products more expensive.
Inflation rose to a four-year high of 2.9% in May, but has since cooled a little.
July's data are a "decent way away from the 2.9% reading seen in May. And given that the Bank of England didn't pull the rate hike trigger at that level, they're not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released," said Connor Campbell, financial analyst at Spreadex, in a note.
See:MarketWatch's economic calendar (http://www.marketwatch.com/economy-politics/calendars/economic)
(END) Dow Jones Newswires
August 15, 2017 09:08 ET (13:08 GMT)