Sterling soars to 2-yr peak vs euro

The pound sterling reached its highest level in nearly two years against the euro and around one year against the US dollar on Wednesday, following stronger-than-expected UK services inflation data for June.

The euro dropped 0.1 per cent to 83.92 pence, its lowest since August 2022, while the pound gained 0.13 per cent against the dollar to $1.299.

UK inflation held steady at 2.0 per cent year-on-year last month, exceeding the 1.9 per cent forecasted by analysts polled by Reuters. Services inflation, a key metric, was at 5.7 per cent year-on-year, compared to the expected 5.6 per cent. Higher hotel prices contributed to the unexpected rise, highlighting the Bank of England’s (BoE) concerns about price pressures in the services sector.

“Today’s inflation data won’t be what the doctor ordered… This marked a third consecutive month where services CPI beat expectations,” said Sanjay Raja, chief UK economist at Deutsche Bank. “Undoubtedly, today’s service print raises the bar for an August rate cut.”

Raja noted the impact of increased live music and accommodation prices, suggesting the “Taylor Swift effect” from her UK tour might be influencing the figures. Despite this, BoE rate setters might overlook some of the inflation surge.

Following the data release, rate futures indicated a roughly one in three chance of a BoE rate cut on August 1, the date of the next scheduled monetary policy announcement, down from nearly 50-50 before the inflation data.