Pound Drops On Rate Hike Worries After Strong Inflation Data

(RTTNews) - The pound fell against its major rivals in the European session on Wednesday, as the nation's inflation came in well above consensus expectations in May, raising concerns about a bigger rate hike from the Bank of England at the monetary policy decision on Thursday.

Data from the Office for National Statistics showed that UK inflation remained unchanged at 8.7 percent in May. The rate was forecast to ease to 8.4 percent.

Core inflation that excludes energy, food, alcohol and tobacco climbed to 7.1 percent, which was the highest since March 1992. The rate was forecast to remain at 6.8 percent in May.

Markets expect the BoE to raise the bank rate by a quarter point on Thursday. Currently, the bank rate is at 4.50 percent, which is the highest since 2008.

Traders look ahead to remarks by Fed Chair Jerome Powell and several other Fed officials for clues on the monetary policy outlook.

Powell is due to testify before the House Financial Services Committee later today and the Senate Banking Committee on Thursday after deciding to leave interest rates unchanged at last week's FOMC meeting.

The pound dropped to a 5-day low of 1.1396 against the franc and an 8-day low of 0.8599 against the euro, from an early more than 6-month high of 1.1505 and a 2-day high of 0.8524, respectively. The next possible support for the currency is seen around 1.11 against the franc and 0.88 against the euro.

The pound was lower against the greenback, at a 6-day low of 1.2699. The currency may locate support around the 1.24 level.

The pound edged down to 179.98 against the yen, off an early high of 181.60. If the pound drops further, it may find support around the 175.00 area.

Looking ahead, Canada new housing price index for May and retail sales for April will be featured in the New York session.

At 10 am ET, Federal Reserve Chair Jerome Powell will testify on the semi-annual monetary policy report before the House Financial Services Committee in Washington DC.