Soft US CPI data supports sterling, weak dollar

The British pound is up 0.1% at around 1.3403 against the dollar during the European trading session on Wednesday. The GBPUSD pair gained as the dollar came under selling pressure, with market participants dialing down expectations for Federal Reserve interest rate hikes.

In the European trade, the DXY Dollar Index, which tracks the greenback’s value against six major currencies, has recovered its early losses and is marginally down to near 100.87. However, the DXY is still holding Tuesday’s losses.

According to the CME FedWatch tool, the odds of the Fed raising interest rates in the policy meeting this month have eased to 16.6% from 41.7% recorded on Monday.

Traders pare hawkish Fed bets as the US consumer price index (CPI) report for June showed on Tuesday that both headline and core inflation grew at a slower-than-expected pace.

In the UK, Andy Burnham is set to replace Keir Starmer as the next Labour Prime Minister on July 20 and will likely appoint a new Chancellor of the Exchequer, as the smooth leadership transition is seen as supporting the British pound.