US Inflation Data Sparks Sterling Rally Amid Fed Rate Bets
The pound rose against the dollar on Wednesday as US inflation data came in line with expectations, reinforcing bets that the Federal Reserve has room to hold interest rates steady in September.
The sterling index (GBP) was last at 1.3534, up 0.21% on the day, while the euro also gained, rising to 1.1557, up 0.12%. According to Chris Turner, global head of markets at ING, a soft print in US inflation data would lead to a 'bullish steepening of the yield curve' and see the dollar soften, particularly against procyclical currencies.
The US Consumer Price Index (CPI) rose 0.1% in July on a seasonally adjusted basis, matching consensus and rebounding from a 0.4% drop in June, with the annual rate cooling to 3.4% from 3.5%. Shelter costs accounted for roughly two-thirds of the monthly gain.
The markets are pricing roughly even odds on a Fed rate rise at the September 17-18 meeting, but Turner cautioned that unfunded tax cuts risk pushing the long end of the Treasury curve higher and could ultimately tip the Fed toward tightening. The pound's near-flat performance reflected its dollar-sensitivity rather than any domestic development.