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Forex - GBP/USD trades above 1.6400 on strong CPI data, Fitch

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Forexpros - The pound climbed to a six-day high against the U.S. dollar on Tuesday, erasing earlier losses as stronger-than-expected U.K. inflation data reduced prospects for further monetary stimulus, while sentiment was boosted after ratings agency Fitch affirmed its U.S. AAA sovereign debt rating.

GBP/USD pulled back from 1.6322, the daily low, to hit 1.6407 during U.S. morning trade, up 0.09% on the day.

Cable was likely to find support at 1.6165, the low of August 12 and resistance at 1.6475, the high of August 8.

The U.K. Office for National Statistics said earlier that the rate of consumer price inflation accelerated to 4.4% in July from 4.2% in June, above expectations for a 4.3% increase.

Core CPI, which excludes food, energy, alcohol, and tobacco costs increased by a seasonally adjusted 3.1% in July, broadly in line with expectations and up from 2.8% in June.

In an open letter to Chancellor of the Exchequer George Osborne following the stronger-than-expected inflation data, BOE Governor Mervyn King said the central bank could raise interest rates or increase asset purchases to bring down inflation towards the bank's 2.0% target.

The BOE Governor is obliged to write to the Chancellor of the Exchequer every three months that inflation is more than a percentage point above or below its 2.0% target.

Meanwhile, market sentiment was boosted after ratings agency Fitch affirmed its triple-A credit rating on the U.S. earlier and said the outlook was 'stable', reflecting the country's "pivotal role in the global finance system".

"The U.S. economy remains one of the most productive in the world, reflected in levels of income per head that are substantially higher than the 'AAA' median and other major 'AAA' sovereigns," Fitch said.

Elsewhere, the pound was higher against the euro, with EUR/GBP slumping 0.34% to hit 0.8782.

The single currency came under pressure as weaker-than-expected growth data out of Germany added to fears over global growth prospects ahead of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy later in the day.

Also Tuesday, official data showed that U.S. industrial production rose by a seasonally adjusted 0.9% in July, above expectations for a 0.5% increase.

Separately, the U.S. Census Bureau said that the number of building permits issued in the U.S. fell 3.2% to a seasonally adjusted 0.60 million in July, while U.S. housing starts fell 1.5% to hit a seasonally adjusted 0.60 million.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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