Pound Drops 1.2% As U.K. Inflation Misses Forecast

The UK pound tumbled the most in five weeks after a report showed inflation undershot analyst forecasts, bringing into focus the uncertain economic outlook after the nation voted to leave the European Union more than two months ago, Bloomberg reports.
Sterling dropped versus most of its 16 major peers after consumer-price growth matched that of previous month, which still was the highest since late 2014.
 The pound fell 1.2 percent to $1.3175 as of 4:16 p.m. in London. It weakened 1.3 percent to 85.30 pence per euro. Sterling touched a 31-year low of $1.2798 on July 6 and is still down about 11 percent versus the dollar since the Brexit vote.
The Bank of England, which cut its key interest rate and expanded a bond-buying program last month, will leave its stimulus measures unchanged on Sept. 15, analysts forecast.
Analysts said investors and traders also sold sterling after its recent rally ahead of policy meetings by the Federal Reserve and the Bank of Japan next week.
Long-dated U.K. government bonds pared gains to stand little changed after the BOE bought 1.17 billion pounds ($1.54 billion) of gilts with maturities longer than 15 years as planned, with offers outstripping bids by 3.21 times.

The European head of currency strategy at Toronto Dominion Bank in London,Ned Rumpeltin, said: “We are mostly looking for two-way risks.” “Sterling still has a substantial base of short positions against it. A decent proportion of that will stick to their guns as the medium-term fundamentals for the pound remain very bearish. We remain committed to a sell-on-rallies posture.”

Consumer prices grew 0.6 percent, the Office for National Statistics said in London, less than the 0.7 percent forecast by economists in a Bloomberg survey.

Traders also will focus on retail sales data later this week, which a separate Bloomberg survey predicts will show a slowdown.
Data since the June 23 referendum have been mixed. Sterling, still the worst performer among major currencies since the

Brexit vote, has outperformed all of its 16 major counterparts in the past month as reports from services to construction showed the U.K. economy was holding up better than some economists predicted.

The yield on 10-year gilts was at 0.87 percent, having fallen earlier as much as five basis points, or 0.05 percentage point. The price of 1.50 percent security due in July 2026 was 105.92 percent of face value. The yield on 30-year gilts was little changed at 1.53 percent.

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