FX.co ★ Sterling Edges Up after Hot Inflation

The British pound surged past the $1.34 mark following unexpectedly high UK inflation figures for June. The headline inflation rate reached 3.6%, surpassing the anticipated 3.4% and climbing from May’s statistics. This development prompted traders to reassess their predictions for interest rate reductions by the Bank of England (BoE). Market projections now estimate an 80% probability of a 25 basis point rate cut in August, with only one additional reduction anticipated by the end of the year. Despite inflation significantly exceeding the BoE's 2% target, analysts point out that the recent increase is largely attributed to changes in energy price caps, which could diminish in the forthcoming months. The focus is now shifting towards the UK labor market, deemed more critical by policymakers. Recent statements from the BoE have stressed concerns about labor market weakness over temporary inflation upticks, indicating that upcoming employment and wage data will play a pivotal role in shaping future rate decisions.