By Joseph Adinolfi, MarketWatch
U.K. high-court ruling will likely delay Brexit, also lifting the U.K. currency
The British pound was on track Thursday for its largest gain in more than two weeks after the Bank of England hinted it could raise interest rates if inflation accelerates too quickly.
One pound bought $1.2445, up 1.1% from $1.2305 late Wednesday in New York. If it finishes the session at these levels, the pound will log its largest daily jump since Oct. 18.
In its quarterly inflation report, the Bank of England warned "there are limits to the extent to which above-target inflation can be tolerated," which, market strategists said, opened the door to a possible rate hike next year. However, the central bank also noted that tightening policy to combat inflation could be costly.
The central bank left interest rates unchanged for now, as was widely expected. The weakness in the pound has pushed consumer prices higher by increasing the cost of imported goods. According to the U.K. consumer price index, prices rose at an annualized rate of 1% in September. The BOE, which maintains an inflation target of 2%, projects that price increases will accelerate above that level next year.
The inflation report "very much supports the view that the BOE isn't ready to consider lower rates any time soon," said Manuel Oliveri, a currency strategist at Credit Agricole. Typically, lower interest rates cause a currency to weaken by decreasing the return on deposits denominated in that currency.
The pound also benefited from a ruling by the U.K. high court, (http://www.marketwatch.com/story/pound-leaps-after-court-delivers-blow-to-uks-brexit-plan-2016-11-03) which said the government of Prime Minister Theresa May would need to seek Parliament's approval before beginning the Brexit process. The ruling will likely delay the Brexit process, Oliveri said.
Elsewhere, the dollar dropped to its lowest level against the yen in a month early Thursday before paring its loss somewhat. The greenback has been under pressure this week as polls showed Democratic nominee Hillary Clinton's lead over Republican rival Donald Trump narrowing, inviting investing uncertainty.
Clinton's lead over Trump has shrunk to 1.7 percentage points on Thursday, down from more than seven percentage points two weeks ago, according to the Real Clear Politics polling average (http://www.realclearpolitics.com/epolls/2016/president/us/general_election_trump_vs_clinton_vs_johnson_vs_stein-5952.html).
"The tightening of the race and renewed momentum by the Trump campaign has global investors greatly worried," said Boris Schlossberg, managing director of currency strategy at BKForex.
The buck was down 0.2% at Yen103.21 in recent trade. The greenback inched higher against the euro, falling 0.2% to $1.1079.
The ICE U.S. Dollar index , a measure of the greenback's strength against a basket of rivals, was flat at 97.3860.
(END) Dow Jones Newswires
November 03, 2016 11:49 ET (15:49 GMT)
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