UK Pound Surges After Inflation Data Boosts Market Outlook

The British pound rose 0.49% against the dollar following UK inflation data, signaling that the Bank of England is likely to keep interest rates steady. Despite increased price growth in the services sector, the bank is expected to maintain a 5% rate. This contrasts with anticipated U.S. policy easing.

The British pound experienced a notable rise against the dollar on Wednesday, driven by UK inflation data that reinforced expectations of steady interest rates from the Bank of England on Thursday. This comes in stark contrast to an anticipated start to the U.S. policy easing cycle later in the day.

Sterling climbed 0.49% to settle at $1.3227, reaching a session high and offsetting Tuesday's losses. Analysts forecast that the Bank of England will maintain interest rates at 5%, following August's unchanged 2.2% inflation rate, despite a rise in service sector price growth.

Simultaneously, data revealed a slowdown in British supermarket sales growth as post-summer holiday consumer spending waned. Chief UK Economist at Deutsche Bank, Sanjay Raja, noted ongoing marginal improvements in underlying inflation data, suggesting continued easing. However, Raja added that the latest data doesn't warrant an unexpected rate cut. Futures markets now suggest a reduced 26% chance of a quarter-point cut, down from 38% earlier in the week.

(With inputs from agencies.)