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Pound Strengthens As U.K. Inflation Rises Unexpectedly

11/13/2012 5:13 AM ET

The British pound outperformed against other major currencies in the early European session on Tuesday after the release of country's better-than-expected inflation data in October.

U.K. annual inflation accelerated more than expected to 2.7 percent in October, from 2.2 percent in September, the Office for National Statistics said today. Inflation was forecast to rise to 2.4 percent.

Month-on-month, consumer prices gained 0.5 percent after rising 0.4 percent a month ago.

Core inflation that excludes energy, food and alcoholic beverages and tobacco costs, increased to 2.6 percent from 2.1 percent in September.

Likewise, retail price inflation came in at 3.2 percent, up from 2.6 percent in September and also above the consensus forecast of 2.9 percent.

In a separate report, the statistical office said output price inflation remained unchanged at 2.5 percent annually in October. The rate also matched economists expectations. On a monthly basis, output prices edged up 0.1 percent, down from the 0.5 percent increase in September.

At the same time, input prices rose 0.1 percent on year, in contrast to the consensus forecast of 0.5 percent fall. On a monthly comparison, input prices gained 0.4 percent, reversing a 0.1 percent drop in September

The house price balance in the U.K. reached the highest level in more than two years in October and buyer enquiries picked up on positive sentiment stemming from credit availability, a closely watched survey revealed early in the day.

The house price gauge rose to -7 from -14 in September, the Royal Institution of Chartered Surveyors said.

The pound added 0.4 percent against the Swiss franc and approached a 4-day high of 1.5112. This may be compared to Monday's close of 1.5059. If the pound rises further, it may break 1.52 level.

Switzerland's producer and import prices climbed 0.4 percent year-on-year in October, after increasing 0.3 percent in September, data from the Federal Statistical Office showed today. Economists had forecast inflation to rise to 0.5 percent.

On a monthly basis, producer and import prices dipped 0.1 percent, partially offsetting a 0.3 percent rise in the previous month. Economists had forecast prices to remain flat from a month ago.

Against the yen, the pound reversed from its early multi-week low of 125.72 and the pair is worth 126.01. The pound-yen pair closed deals at 126.24 yesterday.

The pound firmed against the euro, hitting a 4-day high of 0.7975. The pound thus appreciated 0.4 percent from yesterday's close of 0.8007. The next resistance level for the pound is seen at 0.79.

Euro area finance ministers will hold an extraordinary meeting again on November 20 to finalize the payment of the next tranche of Greek aid, Jean-Claude Juncker, the head of Eurogroup said after chairing the meeting in Brussels late Monday.

Finance ministers granted Greece two extra years to meet its budget targets, although they indicated that they will hold more negotiations before nailing down a new deal, Juncker said. The additional time would leave a funding hole of around EUR 32.6 billion through 2016.

Erasing Asian session's more than 2-month low of 1.5860 against the U.S. dollar, the pound climbed. The pound is now trading at 1.5906 against the greenback with 1.60 seen as the next resistance level. At yesterday's close, the pair traded at 1.5879.

The U.S. monthly budgetary statement is expected in the New York session.

by RTT Staff Writer

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