Pound Falls After U.K. Cool Inflation Data, Rising Fiscal Concerns

(RTTNews) - The British pound weakened against other major currencies in the European session on Wednesday, after U.K. consumer price inflation slowed in June to the lowest since March last year.

Data from the Office for National Statistics showed that the U.K. consumer price index climbed 2.6 percent year-on-year in June, slower than the 2.8 percent increase in May. Prices were expected to climb 2.7 percent.

On a monthly basis, consumer price edged up 0.1 percent, as expected, compared to an increase of 0.2 percent in May.

Core inflation that excludes energy, food, alcohol and tobacco remained unchanged at 2.6 percent in June.

In a separate communiqué, the ONS said output price inflation slowed to 3.5 percent in June from 3.7 percent in May. Similarly, input price inflation weakened to 7.3 percent from 9.3 percent in the previous month.

Softer pricing pressures dampened expectations of aggressive interest rate hikes by the Bank of England (BoE), which puts pressure on the pound. Proposals for cost-of-living relief have also rekindled concerns about the sustainability of long-term debt.

Early optimism about Prime Minister Burnham's administration has quickly given way to financial concerns. Given the lack of matching tax increases, Burnham's plan to reduce the cost of living—which includes temporary VAT reductions on power bills, increased personal tax allowances, and more social housing—has prompted immediate concerns about funding. Concerns over long-term UK sovereign debt have been raised by this fiscal deficit, essentially defeating Sterling's recent gain against the Euro.

In addition, the rising geopolitical tensions between the U.S. and the Iran also weighed on the currency. Investors awaited the European Central Bank's monetary policy announcement on Thursday.

U.S. military carried out its 11th consecutive night of strikes against Iran and President Trump vowed to bomb Pickaxe Mountain.

Iranian media reported explosions in Bushehr, home to the Iranian nuclear power plant.

In the European trading today, the pound fell to 0.8536 against the euro and 1.0852 against the Swiss franc, from early highs of 0.8519 and 1.0883, respectively. If the pound extends its downtrend, it is likely to find support around 0.88 against the euro and 1.07 against the franc.

Against the U.S. dollar and the yen, the pound edged up to 1.3367 and 217.84 from early lows of 1.3396 and 218.42, respectively. The pound may test resistance around 1.31 against the greenback and 215.00 against the yen.

Looking ahead, U.S. MBA mortgage approvals data and U.S. EIA crude oil data are slated for release in the New York session.