Sterling drifts lower amid resilient growth and surging prices

LONDON (Reuters) -Sterling held at a two-week high against the euro and softened slightly against the dollar on Wednesday, after British finance minister Rishi Sunak announced measures to ease the UK’s cost-of-living squeeze and inflation hit a 30-year high.

Against the euro, sterling steadied at 83.137 pence,, the strongest level since March 8. The pound was down 0.4% against a strengthening U.S. dollar at $1.32095.

Sunak cut taxes for workers and reduced a duty on fuel against the backdrop of slowing economic growth and fast-rising inflation.

The announcement came after figures showed inflation at 6.2% in February, up 5.5% in the 12 months to February 2022, more than the 5.9% rise expected by the market.

Policymakers raised interest rates last week but signalled they would take a more cautious approach to policy tightening despite soaring inflation.

“While the Bank of England adopted a dovish tone last week, it may find it has no option to tighten in line with the Federal Reserve if only to dilute the inflationary impulse of a weaker pound,” said Michael Hewson, Chief Market Analyst at CMC Markets UK.

About 70% of wage earners will be better off according to Hewson, but whether the changes will keep track of the rate of inflation is another matter.

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