Pound Steady as UK Inflation Matches Expectations

The British pound held steady on Wednesday after the UK's inflation rate rose to 2.9% in July, matching expectations and easing fears of a Bank of England interest rate hike.

This modest gain was despite renewed energy-driven price pressures expected later this year, which could impact the BoE's decision-making process. The Bank's own forecast of 2.8% inflation for July was slightly below the actual figure.

Core inflation held steady at 2.6%, while services eased to 3.4%. Analysts expect the BoE to keep interest rates at 3.75% through year-end and cut to 3% next year, contrary to market pricing which implies a rate of 4.25-4.50%.

The contained core reading limited sterling's upside. ING's Chris Turner noted that the pound is still drawing support from carry demand in a low-volatility environment, calling it 'one of the highest, volatility-adjusted currencies in G10.'