LONDON (Reuters) -The pound hit its highest for nearly two years against the euro and around one year against the dollar on Wednesday after stronger than expected UK services inflation data for June led markets to reduce expectations for an August rate cut.
The euro dropped 0.1% to 83.92 pence, its lowest since August 2022, and the pound also firmed against the dollar, gaining 0.13% to $1.299.
British inflation held at 2.0% year on year last month, official data showed, above the 1.9% expected by analysts polled by Reuters, and closely-watched services inflation was at 5.7% year on year, compared to the expected 5.6%.
Strong increases in hotel prices were partly to blame for the higher than expected reading, underscoring the Bank of England’s 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 services print raises the bar for an August rate cut,” he said.
Pointing to the rise in live music and accommodation prices, however, Raja noted that “it’s certainly very possible that some Taylor Swift effects were at play here” and that BoE rate setters could look past some of the inflation upside. Taylor Swift has been touring in Britain.
Nonetheless, after the data rate futures showed investors saw a roughly one in three chance of a BoE rate cut on Aug. 1, the date of its next scheduled monetary policy announcement, down from almost 50-50 before the inflation data.
(Reporting by Alun John and Rae Wee; Editing by Amanda Cooper and Mark Potter)
