U.K. Pound Gains Against Dollar, Euro

The pound rose against the dollar and euro for a second day on speculation U.K. inflation exceeded the Bank of England's target in May.

The British currency advanced as economists forecast consumer-price growth reached 3.2 percent last month. A reading of 3.1 percent or more requires central bank Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how he plans to keep to the government's 2 percent target. The last letter was published in April 2007. The statistics office's report is due tomorrow.

The U.K. currency climbed as much as 0.9 percent to $1.9647, and was at $1.9632 by 1:08 p.m. in London, from $1.9476 on June 13. It rose to 78.75 pence per euro, from 78.97.

Inflation accelerated to 3.2 percent last month, the fastest pace since the measure's inception in 1997, according to the median of 39 forecasts in a Bloomberg News survey. The Treasury is preparing to respond to a possible letter from the Bank of England, an official said on June 13.

Interest-rate futures showed traders added to bets that the Bank of England will lift borrowing costs as inflation picks up. The implied yield on the short-sterling futures contract due in December was at 6.39 percent, compared with 5.84 percent two weeks ago.

The twin pressures stemming from the global credit squeeze and the spiraling cost of food and energy are posing the biggest challenge to the central bank since its independence was established a decade ago, Darling will say in a speech June 18.

U.K. Pound Gains Against Dollar, Euro

TradingEconomics.com, Bloomberg
6/16/2008 6:22:56 AM