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FTSE 100 continues to recover Pound falls as inflation holds steady
(about 4 hours later)
The UK market continued to recover in early trade as tensions between the US and North Korea eased. The pound fell against other major currencies after weaker-than-expected inflation data was seen as reducing the prospect of an early rise in UK interest rates.
Worries over the war of words between the two countries last week had led to a sharp sell-off on global markets. CPI inflation remained unchanged at 2.6% last month, whereas analysts had expected the rate to climb to 2.7%.
But shares recovered some ground on Monday, and as trading got under way on Tuesday the FTSE 100 rose 12.67 points to 7,366.56. The data led to speculation that inflation could have peaked already.
Newly-formed fund manager Standard Life Aberdeen was the biggest riser in the index, up 2.8%. The pound fell below the $1.29 mark against the dollar, dropping nearly a cent to $1.2875.
But shares in Next fell 3.6% after Berenberg cut its rating on the High Street fashion chain to "sell" from "hold". Against the euro, sterling fell 0.4% to 1.0964 euros.
On the currency markets, the pound fell 0.2% against the dollar to $1.2941 but rose 0.2% against the euro to 1.1023 euros. "The expected pickup didn't happen. Inflation remains cooler and the pound dipped as investors had expected a rebound in July following the surprise drop in June," said Neil Wilson at ETX Capital.
"It certainly cements the belief that a rate hike this year now looks highly unlikely. The market was positioned for a bit more inflation than we're getting.
"CPI is still expected to peak at 3% later this year before easing back, yet there are signs that inflation may have already peaked."
As the pound fell, shares rose, with the FTSE 100 index up 40.71 points at 7,394.60 by midday. A fall in the pound often benefits the FTSE 100 as it means overseas earnings for companies listed on the index are worth more when they are converted back into sterling.
However, shares in Next fell 4.3% after Berenberg cut its rating on the High Street fashion chain to "sell" from "hold".