January 22, 2014 / 9:10 AM / 4 years ago

FOREX-Aussie jumps on inflation rise, eyes on UK data

* Australian dollar jumps as inflation pares rate-cut risk

* UK jobs data, BoE minutes awaited for clearer rats signal

* Yen briefly blips higher after BOJ stands pat as expected

* Bank of Canada meets after rough month for Canadian dollar

By Patrick Graham

LONDON, Jan 22 (Reuters) - The Australian dollar stole the spotlight on Wednesday, rallying against its U.S. counterpart after an unexpected spike in inflation led investors to cut back bets on another interest rate cut.

In Europe, the focus was on a heavy day of British data and central bank minutes, which may offer the Bank of England a chance to tweak its message on monetary policy and cool expectations for a early rise in its rates next year.

The yen hit a session high after the Bank of Japan kept monetary policy steady as most in markets had expected, but disappointed those hoping for additional easing measures before a scheduled sales tax hike in April.

The Australian and Canadian dollars are seen weakening in 2014 despite an improving global economy, with their prospects likely to be tied more closely to shifts in monetary policy at home than demand for their commodity exports.

But the largest quarterly rise in inflation in over two years and an annual underlying rate of 2.6 percent helped the Aussie gain almost 1 percent, all but erasing its losses since the start of January.

“The market had been pricing in a 30-40 percent change of more cuts in rates and that has really been ruled out,” said Michael Sneyd, strategist with BNP Paribas in London. “There may even now be scope for the market to think about the RBA hiking rates.”

Most of the action in major currencies this year has come from outside the big three of the dollar, yen and euro in the absence of much new direction on monetary policy by their respective central banks.

The BOJ clung to its upbeat consumer inflation forecasts on Wednesday, encouraged by signs of a broadening recovery that may nudge firms into spending more on wages and investment.

The dollar rose just over 0.1 percent on the day to 104.44 yen. It hit a one-week high of 104.75 yen but in general has struggled to make progress after bouncing off a longer-term high of 105.40 earlier this month.

“There is expectation, leading up to the increase in the consumption tax, that the BOJ is going to take more expansionary measures, so whether it was January or February or March, the general consensus is that something will be done in that period,” said Bart Wakabayashi, head of forex at State Street Global Markets.


Sterling, the fastest-rising major currency in the past six months, hovered near one-year highs against the euro before the release of minutes from the Bank of England’s last policy meeting.

An improving economy and expectations the BoE will be the first major central bank to raise rates have also driven the pound close to its highest against the dollar since 2011.

Many strategists are unsure sterling can go much higher against the dollar this year, although there is the prospect before April of flows from Vodafone’s $130 billion sale of its stake in Verizon’s U.S. wireless business.

Data on the labour market, whose improvement has prompted speculation the bank may wind up raising rates earlier than it has flagged, are due at the same time as the minutes, 0930 GMT.

Sterling was flat against the euro and 0.14 percent lower against the dollar at $1.6454.

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