Pound Extends Losses On Tame U.K. Inflation Data, Wednesday, August 15, 2007 1:19:04 AM

After seeing some strength for most of June and through the third week of July, The British pound is on a retreat against most majors. The across the board weakness has pushed the sterling down to multi-week lows against the dollar and the yen. The pound has also lost ground against the euro and the franc.

A report that showed that the annual rate of consumer price inflation dropped below the central bank`s target level exerted downward pressure on the pound.

The consumer price index rose 1.9% on a monthly basis in July, while analysts had expected a 2.3% increase. Annually, the CPI inflation stood at 1.7% versus market expectation of 2.0%. It was for the first time since March 2006 that the inflation fell below the BoE target of 2%.

Slower inflation reduced the possibility of further monetary policy tightening, despite the central bank signaling an interest rate increase in its quarterly inflation report.

Unwinding in carry trades is also considered as a reason for the pound`s weakness. Following the recent downtrend, the upward bound channel, the pound has been forming against the dollar since April 2006, was violated to the downside. If the downward momentum is sustained, the currency pair could find support around the 1.9800 level.

Among the key economic reports the markets look forward to are the results of the Royal Institute of Chartered Surveyors house prices survey and the British Jobless Claims data for July. Additionally, traders are also likely to focus on the minutes of Bank of England`s August rate setting meeting.

The British currency fell heavily versus the US dollar on Tuesday amid July inflation data for the U.K. The pair hit a 1 Ѕ month low 0f 1.9962 yesterday and the losses have been extended in early Asian deals on Wednesday. As of now, the pair is trading near 1.991 with 1.9800 seen as a key support level for the sterling.

Extending the losses incurred on Tuesday, the pound trended lower against its Japanese counterpart in the early Asian deals on Wednesday. The pair has refreshed its 4-month low hit yesterday and is now trading near 233.17. If the sterling weakens further, 230.0 can likely be the next target level for the pair.

Extending Tuesday`s New York evening weakness, the sterling remained lower against its British counterpart in the early Asian deals on Wednesday. Loosing ground at about 3:30 pm ET Tuesday, the pair has lately hit 0.6792. Downside, the pair is likely targeting 0.682.

The British pound trended down against its Swiss counterpart in Tuesday`s late New York trading and early Asian deals on Wednesday. Compared to Tuesday`s intra-day low of 2.4138, the pair has lately touched as low as 2.4120. The market now turns toward the Swiss adjusted retail sales data for the month of July, which has been slated for release at 3.15 am ET.

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