Sterling Edges Up Slightly

The British pound edged higher to just below $1.35 after UK inflation came in hotter than expected.

July CPI rose 3.8% year-on-year, the fastest pace since January 2024 and above economists’ forecasts.

The data prompted traders to scale back bets on Bank of England rate cuts this year, with markets now pricing only about 10 basis points of easing by December—less than a 50% chance of another cut.

Instead, a quarter-point reduction is seen as more likely in early 2026.

Stronger-than-expected GDP and jobs data had already tempered expectations for further easing, and the upside surprise in inflation has further reduced the likelihood of near-term cuts.

With growth holding up and inflation running above forecasts, another rate cut this year could be viewed as too risky.

Sterling rises after data showed U.K. inflation accelerated more than expected in July. Annual inflation rose 3.8% in July, up from 3.6% in June and above the 3.7% forecast by economists in a WSJ survey. Core inflation also increased 3.8% after a 3.7% rise in June, exceeding the 3.7% expected. With a peak in prices not anticipated until later in the year, the Bank of England's scope to cut interest rates will be "severely limited," Raymond James Investment Services strategist Jeremy Batstone-Carr says in a note. Sterling rises to an intraday high of $1.3508 after the data from $1.3482 beforehand. The euro falls to a five-day low of 0.8603 pounds from 0.8630 pounds. (renae.dyer@wsj.com)

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0625 GMT - Sterling rises after data showed U.K. inflation accelerated more than expected in July. Annual inflation rose 3.8% in July, up from 3.6% in June and above the 3.7% forecast by economists in a WSJ survey. Core inflation also increased 3.8% after a 3.7% rise in June, exceeding the 3.7% expected. With a peak in prices not anticipated until later in the year, the Bank of England's scope to cut interest rates will be "severely limited," Raymond James Investment Services strategist Jeremy Batstone-Carr says in a note. Sterling rises to an intraday high of $1.3508 after the data from $1.3482 beforehand. The euro falls to a five-day low of 0.8603 pounds from 0.8630 pounds. (renae.dyer@wsj.com)

0612 GMT - U.K. inflation looks persistent and will keep the Bank of England from cutting interest rates further, writes Joe Nellis, economic adviser at MHA. The rate of annual inflation climbed to 3.8% in July from 3.6% in June, figures show Wednesday. "Given these underlying pressures, the [BOE's] monetary-policy committee will not, and should not, cut interest rates when it next meets in September," Nellis says. "Inflation will need to show some sign of improving if we are to see any cut at all before the new year."(joshua.kirby@wsj.com; @joshualeokirby)

There are a couple to take note of on the day, as highlighted in bold below.

The first ones are for EUR/USD at the 1.1600 and 1.1650 levels. The pair dribbled lower yesterday amid a firmer dollar but the expiries today could help to keep price action more limited in European trading. That especially with a lack of major catalysts to work with. Overall risk sentiment will still be one to watch but the pair might be more rangebound in between the above levels until the Fed minutes release.

Then, there is one for GBP/USD at the 1.3500 level. That rests near the 200-hour moving average of 1.3504 and could come into play as we look towards the UK CPI report later. That being said, traders are pricing in ~94% odds of no rate cut by the BOE in September. As such, it will be hard to move the needle and that presents limited upside for the pound. So, the expiries could help to limit any upside extensions in the session ahead at least.

For more information on how to use this data, you may refer to this post here.

Head on over to investingLive (formerly ForexLive) to get in on the know! This article was written by Justin Low at investinglive.com.

The prospect of the Bank of England sticking to a cautious stance on interest-rate cuts should support sterling over the rest of 2025, Ebury strategist Matthew Ryan says in a note. The U.K. economy showed surprise resilience in the second quarter, he says. Data Thursday showed stronger-than-expected 0.3% economic growth. This should ease pressure on the BOE to continue cutting rates, with markets now bracing for a pause in policy easing at upcoming meetings in September and December, Ryan says. Sterling rises 0.2% to $1.3563 against a weaker dollar. It falls versus the euro, which is last up 0.2% to 0.8618 pounds. (renae.dyer@wsj.com)

The British pound changed hands at $1.588, the highest in around five weeks, after UK GDP beat forecasts.

The economy grew 0.3% in Q2 versus expectations of 0.1%, with annual growth at 1.2%.

June GDP also surprised on the upside, rising 0.4%.

The stronger-than-expected data lowers the chances of further Bank of England rate cuts soon, after last week’s narrow 5-4 vote to cut by 25 bps.

Earlier labour data showed payrolls fell just 8,000 in July, far better than the 20,000 drop expected, with previous losses revised lower.

Unemployment stayed at 4.7% and private-sector wage growth eased slightly to 4.8%.

At the same time, the dollar weakened after US inflation data boosted bets on a September Fed rate cut.