Pound Sterling Stabilizes as US CPI Data Cools Fed Hike Expectations

The British pound held its ground against the US dollar on Wednesday after the release of softer-than-expected US Consumer Price Index (CPI) data. The report showed that headline CPI rose 3.0% year-over-year in June, below the forecasted 3.1%, and down from 3.3% in May.

The lower inflation numbers trimmed the probability of a Federal Reserve interest rate hike at the September meeting to around 10%, down from 25% the previous day. This shift in rate expectations weakened the dollar, providing support for sterling.

The pound had already been buoyed by expectations that the Bank of England (BoE) would maintain higher interest rates for longer, as UK inflation remains stickier than in the US. The divergence in monetary policy outlooks has been a key driver for GBP/USD in recent weeks.