UK gilts plunge after August CPI beats expectations, raising hopes of BoE rate hike

The UK gilts plunged Tuesday after the country’s consumer price inflation index (CPI) for the month of August exceeded market hopes, adding to possibilities of an interest rate hike by the Bank of England (BoE) at its upcoming monetary policy meeting on September 14.

The yield on the benchmark 10-year gilts, jumped 3 basis points to 1.07 percent, the super-long 30-year bond yields climbed 2-1/2 basis points to 1.72 percent and the yield on the short-term 2-year traded nearly 1-1/2 basis points higher at 0.23 percent by 09:15 GMT.

The UK headline consumer price inflation (CPI) surpassed expectations and rose at an annual rate of 2.90 percent for August, the Office for National Statistics (ONS) reported on Tuesday. On monthly basis, the inflation jumped 0.6 percent as compared to a slight deceleration of 0.1 percent in July.

Further, the retail price index also bettered expectations and came in at 3.9 percent for the reported month, higher than previous month's reading of 3.6 percent and 3.7 percent estimated. The higher than expected CPI figure suggest a UK interest rate rise was imminent, sooner rather than later, which helped send the British Pound higher across the board.

Meanwhile, the FTSE 100 traded 0.12 percent lower at 7,404.25 by 09:20 GMT, while at 09:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bullish at 192.94 (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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