The pound was on track for its biggest one-day gain in almost two weeks on Wednesday after data showed British core inflation stayed strong in July, reassuring the market that the Bank of England’s rate rises will have an impact. UK consumer price index excluding volatile food and energy prices, grew by 7.8% in the three months to July, a faster pace than the previous quarter and well above forecasts. But services inflation, which the BoE pays close attention to, fell slightly to 7.2% from 7.3% a month earlier, which is a welcome sign that it may be starting to slow down.
The substantial wage and inflation data put the pound closer to a 50bp rate hike when the BoE meets in early August, though its decision could be pushed out further if services inflation continues to drift lower. The pound was up 0.12% against the dollar at $1.2720 and up 0.27% against the euro at 1.3117. It was also up 0.17% against the yen at 111.80 yen and 0.24% against the dollar at $1.3616.
Meanwhile, the yuan slipped to a nine-month trough as concerns mounted about a deepening growth slowdown. Its fall comes despite a recent recovery in China’s foreign exchange reserves, which will help keep the central bank on its current policy path. The People’s Bank of China has tried to stem the decline by cutting the amount of foreign currency banks must hold as reserves, but this has only had a limited effect.
Investors have been wary of a possible Chinese recession amid weakening global trade and a slowdown in household spending, both driven by waning demand for commodities and higher mortgage rates. That has led to a shift toward haven currencies, with the dollar reaching a fresh 20-year high against a basket of major rivals.
The New Zealand dollar was supported after the central bank slightly pushed out when it expected to start cutting borrowing costs, which gives investors more time to prepare for a rate cut. The Reserve Bank of New Zealand’s policy committee left its official cash rate unchanged at 5.5%. It said it would likely remain there for “the foreseeable future” to ensure annual consumer price inflation returns to its 1% to 3% target range. It also said it expected “the risk of a recession to continue diminishing.” The RBNZ was up 0.5% against the dollar at $0.6705.
