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Sterling firms after inflation's surprise surge

LONDON, June 16 (Reuters) - Sterling firmed on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2.0% target in May raising some concerns that policymakers may start signalling a shift in policy thinking if prices extend their rising streak.

Inflation hit 2.1% in May, outpacing forecasts and looks set to rise further as the country re-opens its economy after its coronavirus lockdowns.

Against a broadly steady dollar, the British pound rose 0.2% to $1.41090, homing in on a 2021 high of $1.4250 hit at the start of June. Against the euro, the British currency rose 0.25% to 85.94 pence.

While the rise in inflation is largely driven by local factors, the Bank of England will be keenly watching whether a stronger currency will help ease price pressures. The British currency is one of the best performing currencies versus the dollar this year with a net 3.3% rise so far in 2021.

“But recent comments suggest some concerns are possibly starting to seep into the MPC’s thinking regarding just how strong these downward pressures might turn out to be: if employment levels hold up as the furlough scheme ends then we could start to see the MPC’s message become increasingly less-dovish,” said Stuart Cole, head macro economist at Equiti Capital, referring to the Bank of England.

In response to the data, two-year British government bond yields rose nearly one basis point to 0.11% to a one-month high.

(Reporting by Saikat Chatterjee; Editing by Muralikumar Anantharaman)

Source: Reuters

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