Sterling rose in European trade on Wednesday against a basket of major rivals, extending gains for the third session against the dollar and moving off four-week lows after UK inflation data.

Mainline UK inflation rose just 2%, the slowest such pace in three years, however, markets focused on services inflation, which remains far from the Bank of Englands targets, in turn hurting the odds of a rate cut in August.

The Price

The GBP/USD pair rose 0.2% to $1.2733, with a session-low at $1.2700.

The pair rose 0.1% on Tuesday, the second profit in a row away from four-week lows at $1.2657.

UK Inflation

Earlier UK data showed mainline consumer prices rose 2% y/y in May, the slowest such pace since July 2021, and down from 2.3% in April.

Core prices rose 3.5%, matching estimates and down from 3.9% in the previous reading.

However, services prices rallied 5.7% in May, above estimates of 5.5%.

Even as mainline inflation fell to 2%, economists expect it to rise once more soon as services prices remain too high, thus its not likely The BOE will cut interest rates soon.

UK Rates

Theres now a 36% chance the BOE will cut interest rates in August, down from 55% in previous estimates.

Traders now only expect 39 basis points of total interest rate cut by the BOE this year.