The Pound Sterling drops after facing selling pressure near 1.2800 due to multiple tailwinds.
A soft UK inflation outlook could prompt the BoE to start unwinding higher interest rates.
The US Dollar recovers amid uncertainty ahead of the US core PCE price index.
The Pound Sterling (GBP) corrects to 1.2750 against the US Dollar (USD) in Wednesday’s London session after posting a fresh 10-week high at 1.2800 on Tuesday. The rally in the GBP/USD pair stalls as the United Kingdom (UK) inflation outlook softens and the US Dollar (USD) comes out of the woods.
UK shop price inflation data from the British Retail Consortium (BRC) indicated that prices of food and non-food items eased significantly in May. Annual shop price changes in the popular retail outlets in the UK grew by 0.6%, the slowest pace since November 2021, from the prior reading of 0.8%. Food price inflation dropped for the 13th straight month, declining to 3.2% from 3.4% in April. The agency noted that retailers are passing the benefit of lower prices to consumers.
A softer UK inflation outlook would boost expectations of rate cuts by the Bank of England (BoE), which has been maintaining a restrictive interest rate stance since December 2021. Currently, investors expect that the BoE could use the August meeting as the earliest point to begin the policy-normalization process.
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