* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: sterling year-to-date tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Oct 18 Sterling climbed back above $1.22
on Tuesday, benefiting from a cooling of the politically led
selling that has hammered the pound since the start of October,
and was aided by a broader pause in the dollar's rally.
The pound was also 0.4 percent higher against the euro, and
the UK currency has now held in a tight two-cent range for a
week against both currency pairs.
Attention on Tuesday will be focused on inflation and any
sign of a rise in import prices that might give the Bank of
England pause for thought as it contemplates a further easing of
monetary policy that might weaken sterling further.
But more broadly there is a sense that, in the absence of
sharper moves in the dollar, it will take some concrete sign of
economic weakness due to the prospect of a Brexit from the
European Union to weaken the pound further in the near term.
"I think sterling is very exposed, but it is also going to
need a trigger for it to go lower," said Richard Cochinos, a
strategist with Citi in London.
By 0810 GMT, the pound traded at $1.2240, up 0.4 percent on
Sterling's near-20 percent plunge since the June 23 vote to
leave the European Union has sent inflation expectations
soaring, driving investors to wind back bets on further interest
rate cuts and other Bank of England stimulus measures this year.
But more broadly there are fears that continued rises in
inflation will drive more sales of government bonds and weaqken
consumer demand, threatening to push the economy towards
stagflation as it faces the fallout of Brexit.
"We think higher inflation is negative news for the pound
-the opposite to the typical impact of positive inflation
surprises on G10 currencies recently," RBC analyst Adam Cole
said in a morning note.
"With the BoE likely to look through a transitory
acceleration in inflation, the main effect will be to squeeze
households' real income as prices rise more quickly than wages,
crimping consumer spending."