The Pound remained steady against the Dollar after UK inflation data strengthened expectations that the Bank of England will leave interest rates unchanged this week, in contrast to the US Federal Reserve, which is expected to reduce rates later on Wednesday.
Sterling traded near $1.3638 at the time of writing, after hitting its highest level since early July on Tuesday amid a broadly weaker Dollar.
The BoE is widely expected to maintain rates at 4% when it meets on Thursday. Official data released on Wednesday showed annual inflation at 3.8% in August, matching a Reuters poll and supporting market views that further rate cuts are unlikely in the near term.
The inflation figure, coming in as expected, is unlikely to influence the Bank of England’s interest rate decision tomorrow. Consumers and businesses will likely need to wait a little longer before seeing any reduction in interest rates.
Economists surveyed by Reuters news agency anticipate one more rate cut before the end of the year.
High inflation continues to pose challenges for both the UK government and the Bank of England. Last week, Chancellor Rachel Reeves urged fellow ministers to support the central bank in curbing price growth while also promoting economic expansion.
Sterling rose slightly against the Euro, which fell 0.07% to 86.89 pence.
The positive takeaway is that August’s inflation data eased some of last month’s unexpected surge, but the downside is that CPI may still have some room to rise before reaching its peak.
Attention has shifted to the US Federal Reserve, which is expected to cut its benchmark interest rate by 25 basis points to a 4.00%-4.25% range on Wednesday.
Last week, the European Central Bank held rates steady, underscoring that major central banks are taking diverging paths.