The British pound strengthened to about $1.356, hovering near a three-month high as investors digested the latest UK inflation and labour-market figures. Headline consumer inflation rose to 2.9% in July from 2.6% in June, in line with expectations, while core inflation held steady at 2.6%. These readings led traders to scale back, albeit slightly, the likelihood of a Bank of England rate hike later this year.
Earlier labour-market data showed the unemployment rate unchanged at 4.9%, a touch above forecasts, while payroll employment fell by 86,000 year-on-year. Regular pay growth, however, remained comparatively robust at 3.5%. Although the UK economy continues to show signs of resilience, elevated oil prices and uncertainty related to the US-Iran conflict still weigh on the inflation outlook.
At the same time, the US dollar index hovered near multi-month lows, offering additional support to sterling. Softer US economic data prompted investors to pare back expectations for further Federal Reserve tightening, putting additional downward pressure on the dollar.