* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Marc Jones
LONDON, Feb 14 Sterling's best run against the
euro in over four months came to a low-key end on Tuesday as
below-forecast British inflation data added to a handful of
subdued signals coming from the economy in the past couple of
The figures still showed the fastest rise in consumer prices
since June 2014, driven by sharply higher fuel prices, but the
headline 1.8 percent year-on-year reading was short of the 1.9
percent increase expected by economists.
It was seen as doing little for the chances of an early rise
in Britain's record low interest rates and knocked the pound,
which on Monday had notched its first unbroken six-day run of
gains against the euro since early September.
Sterling fell as much 0.7 percent to 85.18 pence per euro
before clawing its way back to 84.82 pence as
signals that U.S. interest rates should rise drove the euro
backwards across FX markets.
The pound had already fallen 0.5 percent against the dollar
at $1.2458 and it stayed there as the greenback
rallied. That resistance meant it also made up lost ground
against the Japanese yen to put it at 142.50 yen.
"The hawkish calls (for the Bank of England to raise
interest rates) had been steadily growing in the background and
as soon as the data hit there was a bit of a reality check for
sterling," ING FX strategist Viraj Patel said.
"Focus now switches to the wages data tomorrow and if they
don't pick up as much as inflation, food prices etc... Then the
Bank of England will have to look through the inflation (rise)
and focus on the slowdown in growth."
The political rumblings from Britain's looming divorce from
the European Union also continued which kept UK government bonds
Speaking in Sweden, British Brexit minister David Davis said
Britain would not, as some media reports have suggested in
recent weeks, launch the formal EU exit procedure before the
bloc's leaders holds a summit on March 9-10.
Davis stuck to the previously-flagged end of March
timeframe, meaning it could clash awkwardly with another EU
summit on March 25 being held to celebrate the bloc's 60th
"The 9th or 10th is not a date I recognise in terms of our
timetable. What we have said is by the end of March, sometime
during March," Davis said alongside Ann Linde, Sweden's minister
for EU Affairs and Trade.
The inflation data meanwhile added to an increasingly
complex outlook for Britain's economy, which up until now has
been fending off economists worries surrounding Brexit.
Below the headline numbers, other data showed the prices
paid by factories for fuel and materials rose at an annual rate
of 20.5 percent, the biggest leap since 2008 and underscoring
the pressures currently building on UK firms.
The cost of crude oil alone was more than 88 percent
higher than a year earlier - the biggest increase since June
2000 - overwhelmingly driven by global rebound in prices. The 17
percent post-Brexit vote slump in the pound compounds that.
"The notion of Bank of England tightening policy is not
implausible, but if we are right and the economy does slow to a
growth rate of 1 percent, market pricing for rate hikes will
continue to diminish." said JP Morgan strategist Paul Meggyesi
On the looming Brexit negotiations he added: "I don't buy
the idea that the uncertainty risk premium has been removed by
the progress in the government's (Brexit) plans. It shouldn't
necessarily be seen in a positive light for sterling."
(Additional reporting by William Schomberg; editing by Richard