FX.co ★ Pound Pulls Back Slightly but Holds Near 3-Year High

The British pound experienced a correction, settling around $1.34 after a brief climb to $1.3469, marking its strongest point since February 2022. This movement followed the release of UK inflation data that exceeded expectations. Annual inflation jumped to 3.5% in April, the highest rate since January 2024, surpassing both the 3.3% anticipated by markets and the 3.4% forecasted by the Bank of England. Contributing factors included an increase in the Ofgem energy price cap and a rise in Vehicle Excise Duty. Additionally, services inflation increased to 5.4% from 4.7%, indicating ongoing underlying price pressures. In light of this, market expectations have adjusted, now suggesting only one more 25 basis point rate cut by the end of the year, with the likelihood of an August cut declining to 40% from an earlier 60%. Earlier this month, the Bank of England reduced rates by 25 basis points in a divided decision among policymakers. Huw Pill, the BoE's Chief Economist, who voted to maintain the current rates, voiced concerns that interest rates might be decreasing too rapidly.