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Sterling Gains Against the Dollar as UK Inflation Falls

LONDON, Sept 14 (Reuters) - Sterling gained against the dollar on Wednesday as the greenback moving broadly lower and British inflation unexpectedly eased for the first time in a year.

The pound rose 0.5% to $1.1546, pulling away from its three-decade low of $1.14070 hit last week. Against the euro, it rose 0.2% to 86.59 pence.

The dollar fell after the Japanese yen rose on reports that the Bank of Japan conducted a rate check, in apparent preparation for currency intervention. Policymakers in Tokyo also stepped up warnings about recent sharp falls, thought most analysts doubted there would be any direct yen-buying move soon.

The U.S. dollar index , which measures the currency against six major peers including the yen, was 0.2% down at 109.6. It hit a two-decade peak of 110.79 last week.

Lower fuel prices meant that UK inflation dropped to 9.9% in August, data showed on Wednesday, offering some respite to households and the Bank of England after inflation hit a 40-year high the month before. 

Sterling has been hit hard this year by surging inflation, a looming recession and concerns that tax cuts and increased public spending under a new government could exacerbate price pressures.

The slide in the currency, down more than 15% against the dollar in 2020, is also a headache for the Bank of England since it increases the cost of imports and can cause more imported inflation.

Analysts at ING wrote that in the wake of the inflation data they expect the BoE to raise interest rates by 50 basis points next week, with the overall environment "sterling negative."

"Slowing growth and weaker equity markets should leave sterling as an underperformer," they said.

Reporting by Tom Wilson; Editing by Kim Coghill

Source: Reuters

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