* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
(Rewrites top, updates prices)
By Abhinav Ramnarayan
LONDON, Dec 13 Sterling fell late on Tuesday
after surging on higher-than-expected inflation numbers and
softer government rhetoric on Britain's planned departure from
the European Union.
Focus was shifting to U.S. Federal Reserve and Bank of
England policy statements over the next two days but traders
said the pound would continue to struggle to break through
resistance above $1.27 which has held for the past fortnight.
Consumer prices rose 1.2 percent last month year-on-year,
the Office for National Statistics said, beating economists'
expectation for a 1.1 percent annual rise in a Reuters poll.
That pushed sterling as high as $1.2723 in morning trade
but a burst of mid-afternoon selling pushed it back to
$1.2680 by 1600 GMT, still up marginally on the day. It dipped a
quarter of a percent to 83.96 pence per euro.
"Inflation was clearly a little bit stronger than expected,
and with the Bank of England meeting later this week, it will be
interesting to see to what extent they are concerned," said
Rabobank currency analyst Jane Foley, referring to the BoE
monetary policy committee meeting scheduled for Thursday.
"But I think we will have to have a much more binding
commitment to 'soft Brexit' to see sterling make that leap
towards the $1.30 mark," she said, referring to market hopes
that the UK will maintain close ties with the European Union
even after it leaves the bloc.
Sterling fell sharply from its June highs of $1.5018
following Britain's vote on June 23 to leave the EU.
As a result, many economists expect prices to come under
more pressure next year as the currency's weakness feeds through
to the cost of imports. Yet market pricing suggests the Bank of
England will look past that bounce as a one-off effect in aid of
keeping interest rates low until the end of 2018 given the
economic risks of the Brexit process.
"The market had to a large extent priced for higher
inflation now - but the politics and (the manner of) Brexit is
the overriding factor for sterling," Foley said.
The currency had also taken some support ahead of the data
after comments from UK finance minister Philip Hammond in favour
of a staggered transition period for the country's exit from the
Hammond backed the idea on Monday of a transition period to
smooth the Brexit process and said EU countries also stood to
gain from a gradual British withdrawal.
"Given this optimistic sentiment regarding a smooth divorce
with the EU, we expect cable to continue trading higher for a
while, at least ahead of the Bank of England policy meeting on
Thursday," IronFX analyst Charalambos Pissouros said.
(Editing by Robin Pomeroy)