The British pound edged higher in European markets on Wednesday against a basket of global currencies, holding above its three-week low against the US dollar recorded yesterday, and heading toward its first gain in nine days, supported by active buying from low levels.

Recent comments by Bank of England Governor Andrew Bailey have increased expectations of a UK interest rate cut in August. To reassess these expectations, investors are awaiting the release of key UK inflation data for June later today.

The Price

Pound exchange rate today: The pound rose against the dollar by 0.1% to $1.3400, up from the opening price of $1.3385, with a recorded low at $1.3382.

On Tuesday, the pound lost 0.3% against the dollar, marking its eighth consecutive daily loss its longest losing streak since March 2020 and hit a three-week low of $1.3379 due to the strengthening of the US currency and yields following strong US inflation data for June.

Andrew Bailey

Bank of England Governor Andrew Bailey told The Times on Monday that the direction of interest rates is definitely downward. In the interview, he gave a strong signal that the Bank would accelerate the pace of rate cuts if further signs of "slack" appear in the economy.

The term "slack" refers to a scenario where the economy is not operating at full capacity, with rising unemployment and slowing production. This is considered disinflationary and would reinforce the Banks confidence that inflation will fall to 2.0% by 2026, as currently forecast.

UK Interest Rates

Traders are increasing their bets on Bank of England rate cuts, expecting at least 50 basis points of additional easing this year.

The probability pricing for a 25-basis-point rate cut by the Bank of England in the August meeting currently stands above 80%.

UK Inflation Data

To reassess the current expectations regarding UK interest rates, investors are awaiting the release of key inflation data in the United Kingdom for June, which is expected to significantly influence the Bank of England's monetary policy path.

At 07:00 GMT, the Consumer Price Index is expected to show a year-on-year rise of 3.4% in June, matching the previous reading, while the core Consumer Price Index is also expected to rise by 3.5% year-on-year, also matching the prior reading.

Outlook for the British Pound

At Economies.com Today, we expect that if the UK inflation data comes in below market expectations, the likelihood of a rate cut in August will increase, which would lead to further downside pressure on the pound.