(Corrects price in par 5)
* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Ritvik Carvalho
LONDON, March 21 Sterling rose against the
dollar on Tuesday, as investors awaited data expected to show
continued rising prices in Britain as the country readies to
kick off divorce talks with the European Union next week.
Strong consumer spending was behind the British economy's
surprising resilience in the months immediately following the
United Kingdom's unexpected vote last June to leave the European
However, a weakened pound has caused a rise in domestic
inflation, with a stream of consumer data showing Britons less
ready to spend on non-essential items.
Tuesday's inflation data at 0930 GMT is expected to
overshoot the Bank of England's target of 2 percent, with a
Reuters poll of economists forecasting a 2.1 percent
year-on-year rise in prices.
Sterling was up 0.4 percent at $1.2416 in London
It was 0.1 lower against the single currency at 87 pence per
"Typically higher inflation has been bearish sterling to the
extent that it pushes UK real yields lower," said Sam
Lynton-Brown, currency strategist at BNP Paribas.
He forecast a 2.2 percent year on year rise in inflation.
"But we'd argue with the change in the BoE's (Bank of
England's) message last week to become more hawkish, if we get
an upside surprise to inflation, UK front end nominal rates
should price in a greater likelihood of a BoE rate hike and
therefore sterling shouldn't weaken."
The Bank of England surprised markets last week when one of
its policymakers unexpectedly voted to lift interest rates in a
break with the consensus of keeping rates at a record low.
Some other members of the Bank's monetary policy committee
also gave a hawkish tilt to the Bank's rhetoric, saying it would
not take much for them to follow suit if inflation continued to
Currency analysts at Credit Agricole said any gain for
sterling in response to an upside surprise in inflation numbers
would prove short-lived.
"If anything it must still be noted that medium-term
inflation expectations seem to be well anchored and such
prospects are likely to keep the BoE neutral on rates,
irrespective of last week’s hawkish twist," currency analysts at
Credit Agricole wrote in a note to clients.
"We stay in favour of selling currency rallies, especially
as actual uncertainty with respect to Brexit is unlikely to fall
considerably anytime soon."
(Editing by Mark Trevelyan)