Investing.com – The pound firmed to near six-year highs against the dollar on Tuesday after U.K. inflation rates came in much stronger than expected, which overshadowed Federal Reserve Chair Janet Yellen’s congressional testimony that began dovish and ended on the hawkish side.
In U.S. trading on Tuesday, GBP/USD was trading up 0.34% at 1.7142, up from a session low of 1.7060 and off a high of 1.7192.
Cable was likely to find support at 1.7060, the earlier low, and resistance at 1.7516, the high from Oct. 20, 2008.
The pound firmed after the Office for National Statistics reported that consumer prices rose 1.9% on a year-over-year basis in June, accelerating from 1.5% in May and well above expectations of 1.6%.
Consumer prices ticked up 0.2% last month, the ONS said, defying estimates for a 0.1% decline.
A separate report showed that the house price index climbed 10.5% in the year to May from 9.9% in the year to April.
The upbeat data fueled already growing expectations the economic recovery in the U.K. is deepening, bolstering expectations that the Bank of England will raise interest rates before the end of the year.
Meanwhile in the U.S., the dollar traded lower against the pound despite Fed Chair Janet Yellen’s congressional testimony that went from somewhat dovish to a little more hawkish.
Yellen told the Senate Banking Committee earlier that the U.S. economy continues to improve but added that the recovery is not yet complete. She said that considerable slack still remains in the labor market and wage growth remains weak.
Yellen reiterated that rates are likely to remain on hold for a considerable period after the bank’s quantitative easing program ends, though her observation that small-cap, biotech and other momentum stock valuations appear “stretched” brought the dollar off earlier lows, leaving investors to conclude that interest rates could rise sooner than later if the labor market improves.
Yellen’s comments overshadowed mixed U.S. data, which depicted an economy that continues to recover albeit on a road with lingering potholes.
The Commerce Department reported that U.S. retail sales rose just 0.2% in June, below forecasts for a 0.6% increase. Retail sales for May, however, were revised up to 0.5% from a previously reported 0.3%.
A separate report showed that manufacturing activity in New York state rose to a four-year high this month. The Empire state manufacturing index rose to 25.6 in July from 19.3 in June. Analysts had expected the index to decline to 17.0.
Elsewhere, sterling was up against the euro, with EUR/GBP down 0.71% at 0.7915, and up against the yen, with GBP/JPY up 0.46% at 174.28.
On Wednesday, the U.K. is to publish data on the change in the number of people employed and the unemployment rate, as well as data on average earnings.
The U.S. is to release reports on producer price inflation and industrial production. Meanwhile, Fed Chair Janet Yellen Carney is to testify on monetary policy to the House financial committee.