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Sterling fails to hold on to gains after U.S. inflation data

May 28, 2021

By Joice Alves

LONDON (Reuters) -Sterling fell against a strengthening dollar on Friday after data showed U.S. consumer prices surged in April, confirming the strength of the U.S. economic recovery.

The pound couldn’t hold on to Thursday’s gains when the Bank of England commented on the timing of rate hikes.

It fell as much as 0.4% versus the dollar to $1.4137 in earlier afternoon trade on Friday. At 1520 GMT, it was down 0.2% at $1.4177.

But it was still on track for its fourth consecutive week of gains against a strong greenback.

Shaun Osborne, Chief FX Strategist at Scotiabank said the broad dollar tone would “determine GBP action to close out the week ahead of Monday’s Bank Holiday”.

Against a basket of currencies, the dollar is on track for its best week since late April.

Versus the euro, sterling edged 0.1% lower at 85.95 pence, and was set for its fifth consecutive weekly gains versus the single currency.

Analysts said uncertainty over a possible delay in the UK June reopenings were also weighing on the pound this week.

In the long run, Scotiabank expects the pound to mark a new three-year high of $1.43, Osborne said.

Sterling has found support this week in the comments from the BoE policymaker Gertjan Vlieghe, “which were interpreted as having a hawkish tone,” said Jane Foley, Head of FX Strategy at Rabobank.

Vlieghe said on Thursday the central bank was likely to raise rates only well into next year, while noting an increase could come earlier in 2022 if the economy rebounds more quickly than expected.

Britain started the third stage of its reopening last week, allowing indoor dining in pubs and restaurants. Economic indicators including retail sales, surveys of purchasing managers and employment measures are looking up.

But BoE Chief Economist Andy Haldane warned on Friday there is a chance that cost pressures faced by British companies leads to high prices and inflationary wage spirals.

(Reporting by Joice Alves; Editing by Barbara Lewis, Alexander Smith and Andrew Heavens)