FX round-up: Sterling up after UK inflation data, hint of Brexit ratification

Sterling clawed its way off recent Brexit-inspired softness to make hearty gains on several key crosses due to, at least in part, a faster than expected rise in UK inflation to an almost two-year high.

At about 17:05 BST, sterling was up 1.02% to $1.2307, and had gained 1.08% to €1.1196. The dollar-spot index was down 0.13% to $97.756.

UK's consumer-price index (CPI) inflation rose an annualised 1.0% in September, from 0.6% in August. A 0.9% rise was expected. US CPI inflation for September rose 1.5% on the year, in line and from August's 1.1%.

"UK inflation jumping by the most in (almost) two years has spooked concerns of a cost of living crisis," wrote Jasper Lawler, a market analyst at CMC Markets.

"Alarm bells ringing as 1% inflation is at odds with the Bank of England's (BoE) inflation target of 2%, and demonstrates the Brexit-effect on opinions towards the UK economy," he added.

SpreadEx financial analyst Connor Campbell said sterling's rise on Tuesday at a now potentially delayed BoE rate cut was "outweighing the hopes of a US rate hike."

Also helping the British issue were comments by lawyer James Eadie, one of those representing the Theresa May-led Tory government in a legal wrangle over triggering Article 50 of the Lisbon Treaty.

Eadie told the High Court in London that parliament would "very likely" have to ratify any British deal to quit the European Union (EU), which is different to the legal row in play over May's intended use of Royal Prerogative.

May's challengers firmly assert that the decision to trigger Article 50 should rest with parliament.

Sterling's overall positive session on Tuesday saw it gain on the aussie, loonie and yen, but decline versus the kiwi and rand. Overall, the pound remains soft against commodity units, however.

As a point of interest, reports have Nordea Bank's Stable Return fund starting to short commodity units that were starting to look a little pricey given their recent run, with the kiwi and aussie seen bearing the brunt of any sterling rebound.

Meantime, the US dollar was on the back foot against many commodity currencies, but somewhat surprisingly limped up 0.07% to €0.9097.

Lawler said that dovish comments from the US Fed's Stanley Fischer created some early softness in the greenback but this was unwound when US inflation data came in as expected.

Campbell further said the in-line US inflation data "seemingly" gave the Fed another green light to raise rates before end-2016, a Hillary Clinton election win permitting.

"However, the usual boost this (inflation data) would have given the dollar was largely lost this afternoon ... as sterling cheered the fact that (BoE governor) Mark Carney and company likely won't cut rates in November."