Sterling Gains Against Dollar Amid UK Inflation Anticipation

The British pound rose against the dollar, gaining 0.5% to $1.3190 ahead of UK inflation data and the central bank meeting. Analysts speculate that the Bank of England will hold steady on interest rates despite an expected rise in core inflation, influenced by recent economic stagnation.

The British pound surged against the dollar on Monday, regaining ground after a minor dip last week. This rise comes as the market anticipates crucial UK inflation data and an upcoming central bank meeting.

Sterling appreciated by 0.5%, reaching $1.3190 compared to Friday's close of $1.3125. 'Sterling is holding up quite well,' commented Niels Christensen, Nordea's chief analyst. The consensus is that the Bank of England might be 'less aggressive' in implementing rate cuts due to an expected rise in core inflation.

This week, the Bank of England is predicted to keep interest rates unchanged after a 25-basis-point cut last month. Futures markets indicated a 38% chance of another quarter-point cut, rising from 20% on Friday. Upcoming inflation figures, anticipated on Wednesday, will be pivotal for the BoE's policy announcement, especially following data showing surprising economic stagnation in July.

'The anticipated increase in core inflation is why we don't expect a key rate change,' said Volkmar Baur of Commerzbank. However, he noted that without this rise, the BoE's decision could be complicated by weaker economic data.

Meanwhile, the European Central Bank reduced its interest rates by 25 basis points last week and signaled a continuing decrease in borrowing costs due to slowing inflation and waning economic growth in the eurozone. The pound remained steady against the euro, valued at 84.35 pence.

In related currency news, the dollar weakened while the yen surged to its highest in over a year, with market players eyeing a significant rate cut by the Federal Reserve later this week.

(With inputs from agencies.)