The British pound clung to gains against the dollar early on Wednesday after data showed UK inflation in July picked up, as expected. Sterling was last up 0.14% at $1.3552, resuming its ascent a day after a tepid jobs report pressured the currency. It was a touch weaker against the euro at 85.56 pence.
Get a look at the day ahead in European and global markets with the Morning Bid Europe newsletter. Sign up here. Investors are combing through the latest batch of economic data for clues on whether sterling's rally can continue after three consecutive weeks of gains.
The resilience of the UK economy has bolstered sentiment, but elevated oil prices because of the receding prospects of a deal between the U.S. and Iran to end their war remain a drag. Annual consumer price inflation rose to 2.9% in July from a 15-month low of 2.6% in June. Economists polled by Reuters had widely expected a 2.9% increase, although the Bank of England predicted a smaller rise to 2.8% in forecasts published at the end of last month. "Domestically generated inflation remains contained. We remain content with our view that provided energy prices don't rise much further, CPI inflation will fall to 2.0% by the end of next year," said Ruth Gregory, deputy chief UK economist at Capital Economics.
Traders expect at least one rate hike by the central bank this year, according to data compiled by LSEG. But a majority of economists polled by Reuters expect the central bank to leave rates unchanged at 3.75%. Analysts at Goldman Sachs, which expects no rate increases this year, said the mismatch could be a "likely source of downside sterling pressure in the months ahead".
