Sterling Slumps as Inflation Declines Drive Rate Cut Bets

Sterling saw a sharp drop after an unexpected decrease in UK inflation, prompting expectations of a Bank of England rate cut. Concurrently, the dollar rose as markets evaluated upcoming central bank decisions. Analysts observed that this inflation dip framed Sterling as the worst-performing G10 currency.

Sterling experienced a significant drop on Wednesday following an unexpected decline in UK inflation, which paved the way for a potential interest rate cut by the Bank of England. The currency faced its largest one-day fall as futures markets priced in a nearly certain quarter-point rate cut on Thursday.

Goldman Sachs analysts, led by Teresa Alves, highlighted Sterling's slide as it lost 0.53% to $1.3350. This downturn came after it had hit a two-month high previously amid concerns over Britain's escalating unemployment rates.

Attention in financial circles shifted to key central bank meetings, with the U.S. Federal Reserve's stance on rate cuts in focus. While the dollar ticked upwards, investors awaited decisions from the European Central Bank and the Bank of Japan, with the latter poised to increase rates to a historic three-decade high.

(With inputs from agencies.)