In June, inflation in the UK maintained a steady annual rate of 2%, surpassing expectations of a 1.9% increase. Additionally, services inflation registered at 5.7%, slightly above the projected 5.6%. These positive figures may prompt caution among Bank of England policymakers and have reduced the likelihood of an interest rate cut in August, contributing to a strengthening of the pound.
Conversely, the US dollar declined following a recent rise driven by encouraging retail sales data. Retail sales showed no change in June, outperforming economist forecasts of a 0.3% decrease. This report indicated a resilient economy with minimal recession risks.
Nevertheless, inflation in the US has been trending downward, signaling a nearing possibility of the Federal Reserve implementing its first rate cut. Following last week’s subdued inflation data, investors have fully priced in expectations for a rate reduction by September, exerting considerable downward pressure on the dollar. The Fed remains prepared to lower rates as long as inflation continues to decline, despite the economy’s overall strength. However, any unexpected pause or surge in inflation while the economy remains robust could delay such rate adjustments.
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