Evidence that Britain's red-hot inflation is finally cooling has knocked the wind out of sterling, which had been riding high as this year's best-performing currency in the Group of Seven (G7) developed economies just a day ago.
slowed to 7.9% in June, below forecasts for a reading of 8.2% and down from May's 8.7% rate, more traders may now be inclined to book profits.
"There is likely to be a further repricing of expectations, in our view," said ABN AMRO senior currency strategist Georgette Boele. "This will probably weigh on sterling this year, especially versus the dollar."Investors have widely perceived the BoE as being behind the curve in the fight against inflation and have consistently banked on UK rates to keep climbing, even after those elsewhere, such as the United States, start to plateau.
"The work is not done yet for the Bank of England. As both wage growth and services CPI inflation remain stronger than the Bank forecasted in May, and signs of a turning point in inflation are only tentative for now, interest rates will be raised further," BNY Mellon Investment Management financial economist Sebastian Vismara said.The UK still has the highest inflation of the G7.
The pound tumbled 1% to as low as $1.2898 on Wednesday, marking its largest one-day fall since the banking turmoil of mid-March. Two-year gilt yields , meanwhile, fell by around a quarter of a percentage point on the day - also the most since March - to one-month lows around 4.84%.
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