* UK inflation jumps unexpectedly in June
* Sterling equals 6-year high vs currency index
* Pound hits $1.7192 after Yellen's comments
* Scottish independence seen as risk to sterling
By Jemima Kelly
LONDON, July 15 Sterling rose to match a recent
six-year high against a currency basket on Tuesday, after data
showed British inflation sped up unexpectedly in June to its
fastest rate since January, fuelling the view that interest
rates will rise this year.
Consumer prices rose 1.9 percent on the year in June, the
Office for National Statistics said, above expectations of a 1.6
Sterling climbed 0.6 percent to its highest in
almost six years against the dollar at $1.7192, up from $1.7078
before the data. The pound was also helped by dovish comments
from Federal Reserve chair Janet Yellen, who said that while the
economy was improving the recovery was far from complete.
The euro fell to a one-week low of 79.24 pence from 79.755
beforehand, down half a percent on the day and not
far from its recent two-year low of 79.15.
The pound's gains saw it equal a recent rise to its highest
point in nearly six years against a basket of currencies,
of 89.0, data from the Bank of England showed.
Short sterling rate futures <0#FSS:> fell and the sterling
overnight index swap curve implied a chance of a
rate hike in November. Until late last week, investors were
pricing in the chance of the first move in December.
Inflation had largely been declining over the past year, and
remains below the Bank of England's 2 percent target, allowing
the central bank to hold off on raising interest rates despite
Britain's surprisingly strong economic recovery.
"One of the angles for the BoE moving less quickly ... was
that they had a bit of breathing space provided to them by the
fact that inflation was below target," said Daragh Maher, a
currency strategist at HSBC in London.
"This spike higher today means that breathing space is less,
but what we don't know is how much the BoE will put on this
BoE Governor Mark Carney, appearing before British members
of parliament, said inflation expectations were extremely well
anchored and had improved over the past year.
Separate data released on Tuesday showed house prices also
picked up speed, with property prices in London jumping by a
record 20.1 percent over the 12 months to May.
Tuesday's numbers contrast with a run of recent lacklustre
data, which had helped push sterling to a two-week low of
$1.7059 earlier in the day.
The stronger data will support expectations that the BoE
will raise interest rates for the first time in seven years in
the coming months. That is in sharp contrast to the European
Central Bank which is expected to keep policy easy as it
grapples with disinflation.
"The best play to weigh the diverging monetary policy
outlooks is to short the euro against the pound," said Jeremy
Stretch, head of currency strategy at CIBC World Markets.
Despite sterling's rise, there were risk factors lurking.
Valentin Marinov, a currency strategist at Citi, said the
risk of Scotland voting for independence could discourage buying
sterling against the dollar ahead of a Sept. 18 referendum.
A study by Morgan Stanley on Monday found that if Scotland
splits off from the rest of the United Kingdom, that could see
the value of sterling drop by up to 10 percent, exposing the
rest of the country to more financial risk and delaying any
interest rate hike until after May's general election.
(Additional reporting by Anirban Nag, editing by Nigel
Stephenson and Angus MacSwan)