Pound rises after UK inflation data, yuan hits 9-month low

With inflation still exceeding the Bank of England’s 2% target, the central bank is expected to raise rates further even at the risk of hurting growth, analysts said.

"Core inflation and services inflation are too high. It all indicates that the Bank of England will have to move rates higher in September," said Niels Christensen, chief analyst at Nordea.

"I’m surprised it (sterling) hasn’t gained more ground. (The market is) locked between hike expectations supporting sterling and fear of a weaker economy weighing on sterling."

CHINA WORRIES MOUNT

In Asia, the yuan touched its lowest level since November in both the onshore and offshore markets, falling to as low as 7.2989 per dollar, and hitting a trough of 7.3379, respectively.

That extended Tuesday’s decline following Chinese data that missed forecasts and prompted Beijing to deliver unexpected cuts to its key policy rates as authorities there sought to shore up an economy that has rapidly lost steam in recent months.

The Australian dollar, often used as a liquid proxy for the yuan, plumbed nine-month lows in response to the Chinese data.

"Seeing is believing. The markets still want to see much more tangible evidence of not just monetary, but fiscal support coming through to revive growth (in China)," said Ray Attrill, head of FX strategy at National Australia Bank.

"Until they see any evidence of that, they’re still going to take the view that not enough is being done or that China isn’t sufficiently serious about bolstering growth to really bring about a meaningful shift in sentiment," he said, adding he expected downward pressure on the Australian dollar to persist for now.

The New Zealand dollar, which had also fallen to a nine-month low of $0.5932 in early Asian trade, rebounded after the Reserve Bank of New Zealand policy meeting, to trade higher by 0.3% at $0.5966.

The central bank held its cash rate steady as expected on Wednesday, but slightly pushed out when it expects to start cutting borrowing costs to 2025.

"The statement gave a clearly more hawkish tone, likely defying any dovish expectations,' said Barclays research analyst Shreya Sodhani.

"We think today’s more hawkish statement and the governor’s press conference suggest that the timing of rate cuts will likely be pushed back a bit."

The dollar index was off 0.1% at 103.11, though it was not far from an over one-month peak hit on Monday, driven by higher bond yields following upbeat U.S. data. The euro gained 0.1% to $1.0916.

Elsewhere, a sliding yen kept traders on intervention watch. The currency has hit the key 145 per dollar level for four sessions now, a zone that triggered heavy dollar selling by Japanese authorities in September and October last year.

"Markets are concerned whether the Bank of Japan will intervene or whether dollar-yen needs to go all the way up to 150," Nordea’s Christensen said.

"They have not been so loud in the last week but the threat of intervention is why the market has been a little bit hesitant to push dollar-yen up."

Policymakers’ rhetoric against defending a weakening yen has been less robust than last year. Finance Minister Shunichi Suzuki said on Tuesday that authorities were not targeting absolute currency levels for intervention.