FX.co ★ Sterling Edges Up after Hotter-than-Expected Inflation

The British pound advanced closer to $1.35 following a hotter than anticipated inflation report from the UK. The Consumer Price Index (CPI) for July increased by 3.8% on an annual basis, marking the fastest rate since January 2024, and surpassing economists' predictions. This data led traders to reassess their assumptions about potential Bank of England interest rate cuts this year. The market now anticipates only around 10 basis points of easing by December, reflecting less than a 50% probability of another reduction. Instead, it is more likely that a quarter-point decline will occur in early 2026. Already positive GDP growth and employment data had moderated expectations for further rate cuts, and the unexpected rise in inflation has further diminished the possibility of immediate easing. With economic growth remaining steady and inflation exceeding forecasts, implementing another rate cut this year might be perceived as overly risky.