GBP/USD breaks $1.30 barrier on UK inflation data

The pound climbed to new multi-month highs on Wednesday as the latest UK inflation figures weakened bets for a Bank of England (BoE) interest rate cut in August.

Sterling subsequently relinquished some of these gains and is now struggling this morning, with GBP/EUR subdued at €1.1882 and GBP/USD slipping to $1.2984. GBP/CAD has stumbled to CA$1.7761, while GBP/AUD retreats to AU$1.9272 and GBP/NZD holds steady at NZ$2.1393.

Coming up, will the European Central Bank’s (ECB) latest interest rate decision infuse some volatility into the euro today?

What’s been happening?

The pound strengthened during yesterday’s session in the wake of the UK’s latest consumer price index.

Data published by the Office for National Statistics (ONS) showed that inflation held at 2% in June, rather than decelerating to 1.9% as forecast.

Coupled with stronger-than-expected services inflation – a key measure of domestic price pressures – this weakened the odds of the Bank of England (BoE) cutting interest rates in August and lifted Sterling in the process.

The US dollar, meanwhile, faced pressure on Wednesday as investors continue to price in an expected interest rate cut from the Federal Reserve in September.

Helping to temper these losses, however, were the latest US industrial production figures, which reported stronger-than-expected factory output in June while also revising May’s data higher.

At the same time, the euro’s negative correlation with the US dollar helped the single currency to appreciate during yesterday’s session, despite a lull in notable Eurozone data.

What’s coming up?

In the spotlight today is the European Central Bank’s latest interest rate decision.

While the ECB cut rates in June, the bank is expected to leave its monetary policy untouched today, particularly after the minutes from the June meeting showed that support for the cut was far from unanimous.  

However, the euro could still weaken this afternoon if the ECB’s forward guidance signals that the second half of 2024 is likely to bring further rate cuts.

In the meantime, today’s European session opened with the publication of the UK’s latest jobs report.

While unemployment remained on hold in May, a slide in wage growth is weighing on the pound this morning as it revives bets for a potential August rate cut from the BoE.

Finally, the release of the latest US initial jobless claims could drag on the US dollar this afternoon if they report new unemployment claims rose again last week.