LONDON, Sept 12 (Reuters) - Sterling jumped more than half a percent against both the dollar and euro on Tuesday after UK inflation rose to its highest in five years, adding to the case for the Bank of England to do more to support the pound.
Inflation surged to 2.9 percent, more than forecast and way above the BoE’s 2 percent target as households paid more for fuel and clothing, complicating policymakers’ job of explaining why they are not raising interest rates.
The pound, already higher ahead of the data release, surged to a 1-month high of 90.14 pence per euro, up 0.7 percent on the day. It also rose to $1.3271, its highest since the start of August.
British government bond futures extended losses by around 10 ticks after the data while 10-year gilt yields edged up to their highest since Sept. 1 at 1.076 percent after the data.
Short sterling interest rate futures inched downwards, pricing in a marginally higher outlook for Bank of England rates, while London’s FTSE 100 fell slightly as the gains for the pound weighed on the index’s mainly foreign-earning constituents. (Writing by Patrick Graham)