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European Session – Sterling soars on upside surprise to UK CPI, dollar up after US housing starts jump

The British pound was the strongest performer out of the major currencies today in the wake of better-than-expected UK inflation data. The consumer price index (CPI) in the UK rose to an annual rate of 0.1% in July, surprising markets that expected it to remain unchanged at 0%. The month-on-month rate fell 0.2% but it was less than the expected 0.3% fall that was forecast.

The data today improved market expectations for a Bank of England rate hike to come sooner rather than later. The pound rallied against the dollar to a seven-week high of 1.5716. The pound’s strength pushed the euro down against it to 0.7025.

The dollar fell against the yen during the European session to touch a session low of 124.17 from a peak of 124.50 but recovered most losses after US housing starts data came in above forecast in July to reach an almost eight-year high.

US housing starts jumped 0.2% in July to a 1.21 million annualized rate from a 1.2 million pace in June, beating forecasts for a 1.19 million pace of increase. The disappointing building permits figure was shrugged off. Permits undershot at 1.12 million versus 1.23 expected. Today’s housing starts numbers offset the weak Empire State manufacturing index number from Monday. US inflation data due on Wednesday will now come into focus.

The euro slid to 1.1025 after the dollar was boosted post-US housing data. The euro had reached a session high of 1.1093. There were no Eurozone data releases today but focus will remain on developments in Greece and the German Parliament’s vote on the Greek bailout on Wednesday. Meanwhile, the euro could become vulnerable due to political uncertainty that would arise if Greek Prime Minister Alexis Tsipras calls a no-confidence vote.

Commodity prices remained under pressure from worries about slower growth in China, consequently hurting commodity-linked currencies such as the Canadian dollar and the Russian rouble as crude oil remains below $42 a barrel. Meanwhile, Chinese stocks plunged over 6% today, hurting overall global market sentiment.

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