Sterling Slips as Markets Await Crucial U.S. Inflation Data

The British pound edged lower on Tuesday, moving away from last week's one-year high, as investors awaited U.S. inflation data expected to stir currency markets. Despite a strong performance this year, driven by sticky inflation data and political stability hopes, experts predict a future dip as the Bank of England may cut rates later in the year.

The British pound edged lower on Tuesday, slipping further from last week's one-year high, as investors anxiously awaited U.S. inflation data expected on Friday, which could stir otherwise subdued currency markets.

Sterling was last recorded at $1.2924 against the dollar, down 0.1% from its highest level since July 2023 last week, when it peaked at $1.3044. Against the euro, the pound remained relatively unchanged at 84.18 pence.

On Tuesday, the dollar index showed little movement as investors awaited the U.S. Personal Consumption Expenditure (PCE) inflation data, the Federal Reserve's preferred measure, scheduled for Friday. This year, the British pound has been the top-performing currency against the dollar, driven by stickier-than-expected services inflation that caused the Bank of England to delay interest rate cuts, keeping yields on UK bonds appealing.

The Labour Party's overwhelming election victory on July 4 has further boosted investor hopes for political stability after several tumultuous years under Conservative rule. However, Chris Turner, global head of markets at ING, anticipates the pound will decline later this year as the Bank of England eventually lowers borrowing costs.

'We are still officially forecasting three BoE rate cuts this year. When UK data permits, we expect sterling to trend lower,' Turner stated. 'The August 1 MPC rate meeting will be a crucial opportunity to hear the BoE's post-election stance.'

Despite this, currency speculators foresee short-term gains for the pound, with net bets on a rise in sterling reaching an all-time high of $10.77 billion last week.

(With inputs from agencies.)