UK gilts plunge after consumer inflation stagnates in July; investors eye June jobless rate

The UK gilts plunged Tuesday after consumer price inflation stagnated during the month of July. Also, investors now look forward to the release of the unemployment rate for the month of June, scheduled to be released on August 16 by 8:30GMT.

The yield on the benchmark 10-year gilts, jumped nearly 3 basis points to 1.09 percent, the super-long 30-year bond yields climbed 2-1/2 basis points to 1.75 percent and the yield on the short-term 2-year traded nearly 2-1/2 basis points higher at 0.23 percent by 09:40 GMT.

UK inflation surprisingly held steady in July, reducing some of the pressure on the Bank of England for a rate hike but keeping up the squeeze on household budgets. The UK consumer prices index rose 2.6 percent for a second month in July, the Office for National Statistics revealed on Tuesday, when it had been expected to rise to 2.7 percent. Core CPI, which excludes more volatile prices like fuel and food, also remained at 2.4 percent when it had been forecast to rise to 2.5 percent.

Employment growth is likely to have remained firm in June, while the unemployment rate looks set to have moved sideways, having fallen to a new forty-two-year low of 4.5 percent in May. But despite labour market tightness, headline pay growth will have almost certainly remained subdued, likely below 2.0 percent.

With regard to retail sector activity, the latest survey indicators brought mixed signals about the underlying strength of consumer spending. While consumer confidence took a turn for the worse, and new car sales continued to decline, retailers reported relatively firm results in July. So having recovered in Q2 after a notable decline at the start of the year, retail sales might well post a further modest increase.

Meanwhile, the FTSE 100 rose 0.37 percent to 7,382.25 by 09:40 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained slightly bullish at -84.78 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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