Sluggish inflation is complicating investors’ plans on the British pound. Slower-than-expected growth in consumer prices on Tuesday forced fund managers to dial back their bets on an early interest-rate increase by the Bank of England, sending the currency to a four-month low against the dollar.
Unexpectedly low inflation is the latest in a series of setbacks for the pound, which hit a six-year high in July as a burgeoning economic recovery had cemented the view that the Bank of England would be the first major central bank to raise interest rates. Higher interest rates make a currency more attractive to investors.
But an uneven recovery has raised questions about the timing of policy moves at the BOE, catching investors off guard. It is a problem faced by money managers throughout the foreign-exchange market, where the value of major currencies like the pound, dollar and euro hinges on shifting thinking of central bankers in London, Washington and Frankfurt.