Sterling Soars as Rate Speculations Shift

The British pound rose to a three-week high against the U.S. dollar as investors predict that U.S. interest rates may decrease faster than British rates. U.S. inflation data reinforced this belief, while UK economic indicators create a complex landscape for the Bank of England's next moves.

The British pound surged to a three-week high against the U.S. dollar on Wednesday, driven by mounting speculation that U.S. interest rates may fall more swiftly than those in the UK. This shift comes in the wake of recent U.S. inflation data that showed consumer prices rising by 2.7% annually in July, slightly below expectations of 2.8%.

In contrast, the core inflation measure, excluding food and energy, increased by 3.1%, higher than the forecasted 3%. This reflects higher costs due to newly implemented tariffs. The sterling has appreciated 8.3% against the dollar this year, and hit $1.3569, its highest since late July. In August alone, the pound climbed nearly 2.4% against the dollar, poised for the largest monthly rise since April.

Money markets are now anticipating a rate cut by the Federal Reserve in September, with further reductions likely by year-end. Meanwhile, the UK labor market showed weakness in hiring but persistent wage growth, complicating matters for the Bank of England. Upcoming GDP data could influence future expectations, as analysts forecast a 0.1% economic expansion for the UK in the three months to June.

(With inputs from agencies.)