Pound up against dollar

Business Materials 12 August 2008 22:34 (UTC +04:00)

The pound gained against the dollar as market players awaited Wednesday's key Bank of England inflation report, which should give more clues on which direction the next move in interest rates will be.

Data Tuesday showed a massive spike in annual UK CPI inflation during July to 4.4 percent from 3.8 percent in June, the AFP reported.

This takes the rate to more than double the Bank of England's 2.0 percent target, increasing the chances that interest rates could be set to rise.

With mounting evidence, however, that the credit crunch and soaring inflation are taking their toll on the UK economy, there are still many in the market that think the next rate move will be a cut.

The uncertainty will mean most will remain sidelined until the views of BoE rate setters becomes clearer following tomorrow's inflation report, where they will lay out their latest forecasts for inflation and growth.

"As expected, inflation continues to move higher, however the market will be more interested in tomorrow's inflation report which will include the MPC's view on the likely path of inflation over the next couple of years," said Ian Kernohan at Royal London Asset Management.

At 13:52 GMT, the pound was trading at $1.9034 against the dollar, up from $1.8999 at 09:45 GMT, and well above an earlier nine-month low of $1.8967.

The euro meanwhile edged up to 0.7844 pounds from 0.7837 at 09:45 GMT.