The Pound to Dollar rate rallied on Tuesday after softer-than-expected US inflation pushed investors to scale back Federal Reserve rate-hike bets. GBP/USD traded around $1.3411, up roughly 0.5% on the day, as a divergence opened between US and UK rate expectations.
The Pound to Dollar exchange rate rallied on Tuesday after softer-than-expected US inflation data prompted investors to scale back expectations for another Federal Reserve interest rate hike. At the time of writing, GBP/USD was trading around $1.3411, up approximately 0.5% on the day.
US inflation undershoots forecasts
A US Dollar selling bias emerged on Tuesday after the latest consumer price index showed inflationary pressures eased by more than expected last month. June's print showed headline inflation slow from 4.2% to 3.5% year-on-year, comfortably below forecasts for a more modest easing to 3.8%.
Core inflation also undershot expectations, with annual core CPI easing to 2.6%. In response, markets trimmed some of their hawkish policy expectations for the Fed, with the odds for a September rate hike falling from around 70% to 50%.
Pound gains as BoE bets firm
The Pound meanwhile found support as investors doubled down on bets that the Bank of England will have to raise borrowing costs again. That shift stems from a fresh spike in global energy markets: with conflict flaring in the Gulf, the Strait of Hormuz shipping lane has been blocked, raising fears of a renewed inflation shock that could force the BoE's hand before 2026 draws to a close.
Even so, Sterling's rally was tempered by cautious commentary from BoE Governor Andrew Bailey. Appearing before the Treasury Select Committee, he pointed to Middle East unrest as a serious threat to financial stability, while reminding lawmakers that Britain's sluggish economic growth remains a heavy drag on the domestic outlook.
What comes next
The next catalyst for GBP/USD will be Wednesday's US producer price index. A cooling in factory-gate prices could weigh on the Dollar further if it points to easing US inflationary pressures. Movement in the Pound, by contrast, looks set to stay limited on Wednesday amid a lull in UK data ahead of Thursday's GDP release.
Source: Exchange Rates UK
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