Research Team at BBH, notes that the Sterling was posting corrective upticks before news that prices rose more than expected in September and made a marginal new high near $1.2275, but progress quickly stalled.
“Comments from the UK government attorney (Eadie) that seemed to recognize parliament’s right to ratify the Brexit Treaty was understood by the market as making a hard exit marginally less gave a fresh boost to sterling that made new highs on near midday in London.
Headline CPI rose 0.2% on the month for a 1.0% year-over-year pace. This was slightly more than expected and compares with a 0.6% pace in August. The core rate rose to 1.5% from 1.3%, which is also a little more than expected.
One of the reasons that higher inflation is not good for sterling is that the middle terms are lacking here. Bank of England Governor Carney has made it clear that the higher inflation readings will be accepted and will not trigger a tightening of monetary policy. There are at least two chains of reasoning. First, the currency impact is transitory. Second, higher inflation may offer some cushion to the economic headwinds that are prudent to expect.”