Forex Pros – The pound was trading close to a five-and-a-half-month low against the U.S. dollar on Tuesday, as concerns over sovereign debt contagion saw investors shun riskier assets while a report showing a decline in U.K. inflation weighed on interest rate expectations.
GBP/USD hit 1.5781 during European afternoon trade, the pair’s lowest since January 26; the pair subsequently consolidated at 1.5827, shedding 0.49%.
Cable was likely to find support at 1.5582, the low of January 12 and resistance at 1.5917, the days high.
Earlier in the day, the cost of insuring Spanish, Portuguese and Greek sovereign debt against default surged to euro-lifetime highs, while 10-year Italian bond yields rose to more than 6% for the first time since the inception of the single currency.
Meanwhile, Dutch Finance Minister Jan Kees de Jager said the possibility of a partial default by Greece in order to put the country’s debt on a more sustainable footing could no longer be ruled out, despite the European Central Bank’s opposition to such a move.
Also Tuesday, official data showed that consumer price inflation in the U.K. declined unexpectedly in June, the first decline in the index in the month of June since 2003.
The Office for National Statistics said consumer prices fell 0.1% last month, taking the annual inflation rate to 4.2%.
The worse-than-expected data saw investors trim back expectations for a near-term rate hike by the Bank of England.
But the pound was higher against the euro, with EUR/GBP shedding 0.31% to hit 0.8791.
Later in the day, the U.S. was to publish official data on its trade balance. Also Tuesday, the Federal Reserve was to publish the minutes of its June policy-setting meeting.
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