• The Pound Sterling weakens against the US Dollar after UK inflation came in slightly softer than anticipated.
• Easing UK price pressures gives more chances to subsequent interest-rate cuts by the BoE.
• Investors await the US CPI data for July.

The Pound Sterling (GBP) faces a sharp sell-off against its major peers in Wednesday’s London session. The British currency weakens as the United Kingdom (UK) Office for National Statistics (ONS) has reported a softer-than-expected Consumer Price Index (CPI) report for July, which has boosted expectations of sequential interest-rate cuts by the Bank of England (BoE).

Annual headline CPI rose by 2.2%, less than estimates of 2.3% but accelerating after returning to banks’ target of 2% both in May and June. In its forecasts, the BoE had already warned that the headline inflation could increase again after returning to 2%. Compared with the previous month, the CPI fell by 0.2%.

The core CPI, which excludes volatile items such as food, energy, alcohol and tobacco, decelerated at a faster-than-expected pace to 3.3% compared with the 3.4% expected and June’s figure of 3.5%. A sharp decline in core inflation was prompted by slower growth of service inflation, which has remained a major driving force to stick price pressures in the UK economy. Inflation in the service sector declined to 5.2% from the former release of 5.7%.

Price pressures in the service sector are majorly driven by high wage growth, which also fell to its lowest in two years in the three months ending June. The Employment report showed on Tuesday that Average Earnings Excluding Bonuses rose at a slower pace of 5.4% from 5.7% in the quarter ending May. A sheer decline in service inflation due to slower wage growth is expected to be a big relief for BoE policymakers, who have been worried that wage pressures couldn't be controlled in the near term.