Softer UK May CPI data delays Bank of England rate hike expectations to December, weighing on the pound against the dollar.
GBP/USD traded near its 200-day moving average of 1.3417 as UK inflation data undershot expectations, reducing pressure on the Bank of England to tighten policy. Headline CPI held at 2.8% year-over-year in May, below the 3.0% consensus and the BOE’s 3.3% projection, while core CPI rose to 2.6%, missing forecasts of 2.7%.
The softer inflation print pushed back market expectations for a first 25bps BOE rate hike to December from November, according to swaps pricing. UK Gilts outperformed European bonds, reflecting diminished tightening bets. Analysts now see GBP/USD drifting lower toward 1.3100 amid stronger US growth prospects and persistent UK political uncertainty.