Softer US CPI data for June reduces expectations for a July Fed rate increase, lifting the British pound against the dollar.
The GBP/USD pair rose to 1.3405 in early Asian trading Wednesday, extending gains as weaker-than-expected US inflation data eased pressure on the Federal Reserve to tighten policy further. The US Consumer Price Index (CPI) increased 3.5% year-over-year in June, down from 4.2% in May and below the 3.8% forecast, while monthly headline CPI fell 0.4% after a 0.5% rise in May.
Core CPI, excluding food and energy, remained flat month-over-month and rose 2.6% annually, below the 2.9% print in May and the 2.8% consensus. The data prompted traders to slash bets on a July rate hike, with odds dropping to 16% from 42% on Monday, though a 2024 hike remains likely at 80%.
The dollar weakened broadly as markets priced in a less aggressive Fed, while expectations for Bank of England rate hikes strengthened, supporting the pound.