Pound Gains Strength as US Rate Hike Bets Fade Amid Cool Inflation Data

The British Pound has gained strength against the US Dollar to around 1.3550 in early Asian trading hours on Tuesday, as traders reduce bets on a US Federal Reserve rate hike following cooler inflation data.

The UK's employment report will be closely watched later this week, which could offer hints about the Bank of England's interest rate path. The UK Unemployment Rate is projected to fall to 4.8% in June from 4.9% in May, potentially lifting the GBP against the USD.

The weak US Retail Sales and softer-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data last week have tempered expectations of a September Fed rate hike. Traders are now pricing in just a 35% probability of a September hike, alongside a 69% odds of a rate increase by December.

Bank of England Chief Economist Huw Pill said that stronger-than-expected UK economic growth readings reinforced the case for higher borrowing costs to bring inflation back to target. The Bank of England has priced in at least one interest rate increase this year, according to data compiled by LSEG.