Pound at Over Two-Week High on Strong UK Data

The British pound strengthened above $1.363, reaching its highest level in six months as a weaker US dollar boosted major currencies. Sterling benefited from the sharp dollar decline after the US Treasury unexpectedly announced plans to at least double its purchases of longer-dated government bonds. The move is aimed at supporting liquidity and containing elevated long-term borrowing costs, which contributed to a broad rise in G10 currencies. Domestic factors have also supported sterling, with UK inflation remaining relatively high and reinforcing expectations for tighter monetary policy. Consumer price inflation accelerated to a four-month high in July, although recent labour-market data indicated some cooling in employment conditions. Markets continue to price in one Bank of England rate increase by the end of this year, with another quarter-point hike fully reflected by April next year.

The British pound strengthened to around $1.356, remaining close to a three-month high as investors assessed the latest UK inflation and labour-market data. Consumer inflation accelerated to 2.9% in July from 2.6% in June, matching expectations, while core inflation remained unchanged at 2.6%. The figures prompted traders to modestly reduce expectations for a Bank of England rate hike later this year. Earlier labour-market data showed unemployment holding at 4.9%, above forecasts, while payroll employment declined by 86,000 year-on-year. Regular earnings growth remained relatively firm at 3.5%. Despite signs of resilience in the UK economy, elevated oil prices and uncertainty surrounding the US-Iran conflict continue to pose risks to the inflation outlook. Meanwhile, the dollar index remained near multi-month lows, providing additional support to sterling. Softer US economic data led investors to scale back expectations for further Federal Reserve tightening, weighing on the dollar.

The British pound eased to around $1.352, down from an over three-month high of $1.354 hit on Monday, as signs of a cooling UK labour market weighed on the currency. Unemployment remained at 4.9% in June, above expectations for 4.8%, while job vacancies fell to 707,000 in the three months to July, their lowest level since 2021. Private-sector regular pay growth also slowed to 2.8% year-on-year, its weakest pace since late 2020. The softer labour market strengthens the case for the Bank of England to keep rates unchanged, although markets are still pricing some monetary tightening by year-end. Markets will now focus on inflation data on Wednesday. Meanwhile, renewed US-Iran tensions pushed oil prices higher and supported the dollar as investors sought safety. Despite Tuesday’s decline, sterling remains slightly higher year-to-date, helped by broader dollar weakness, reduced expectations for Federal Reserve rate hikes and relatively contained oil prices.