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By Jemima Kelly and Anirban Nag
LONDON, Sept 13 Sterling skidded by more than 1
percent to hit two-week lows on Tuesday, after UK inflation came
in below expectations and as investors refocused on the risk
that Britain's negotiations to leave the European Union could
hurt the economy.
The pound had been on a winning streak until last Tuesday
when it hit a seven-week high of $1.3445 that left it
more than 5 percent up from a three-decade low plumbed in July
soon after the EU referendum, as investors trimmed record short
positions against the currency.
But since then, with the head of the Bank of England leaving
the door open to more monetary easing, and with Brexit
negotiations back in the headlines after the British parliament
returned from recess, sterling has shed almost 2 percent.
Brexit minister David Davis said on Monday that Britain will
make its guidelines for talks on leaving the European Union
public by the time it triggers the formal exit process, in the
first indication of when Britons will find out what the
government hopes to achieve in the talks.
"We've had some Brexit issues coming into focus in the
market in the last few days, which does indicate that there's
still a fair degree of division on the politics side, after a
couple of months of not a whole lot on Brexit," said Bank of
Tokyo-Mitsubishi UFJ currency strategist Derek Halpenny.
EU leaders will meet at a summit in Bratislava on Friday,
where Brexit is likely to be high on the agenda, which Halpenny
said might be a focus point for investors.
Data released on Tuesday showed Britain's annual consumer
price inflation rate for August unchanged at 0.6 percent, just
below forecasts for 0.7 percent, while core inflation, which
strips out volatile items, was also a tad lower than expected.
Sterling fell after the data and then continued to fall,
hitting a low of $1.3190, 1.1 percent down on the day
and its weakest since September 1. Against the euro, the pound
also fell 1.1 percent to a two-week low of 85.21 pence
The Bank of England, which starts a two-day policy meeting
on Wednesday, said last month that sterling's more than 10
percent fall in the wake of the Brexit vote was likely to cause
inflation to overshoot its 2 percent target. But the central
bank said most policymakers were likely to see through this jump
and would keep policy accommodative to support the economy.
The BoE is not expected to announce new measures this week,
having cut interest rates to record lows and reintroduced an
asset-purchase programme last month. But traders expect it to
stick to a dovish bias.
"We suspect that the MPC (monetary policy committee) will
likely stick to its very cautious assessment of the economy and
fairly dovish policy outlook despite the latest more upbeat
activity data," analysts at Credit Agricole wrote in a note.
(Editing by Janet Lawrence)