Sterling's Gains Fizzle as Dollar Surges on US Inflation Data

The pound sterling's rally was short-lived as it pared its gains against the US dollar on Thursday, after hotter-than-expected inflation data from the US.

The dollar strengthened following the release of the US producer-price index (PPI), which showed a 0.4% month-on-month increase in August, matching expectations, but with an annual rate accelerating to 5.4% from 4.7%, slightly above the consensus forecast of 5.3%.

The European Central Bank (ECB) also raised its benchmark rates by 25 basis points on Thursday, taking the deposit rate to 2.50%, while declining to pre-commit to further moves.

ING FX strategist Francesco Pesole noted that the US Treasury's announcement of a $6 billion long-term bond buyback could help the dollar respond more efficiently to external drivers such as higher oil prices and weaker equities.