The British Pound will on Wednesday encounter another key economic release in the form of CPI inflation for June which will determine whether the Bank of England will deliver a second consecutive 50 basis point interest rate increase in August.
The Pound has rallied through 2023 as UK inflation has proven more resilient than expected and prompted the Bank of England to take a more assertive stance on monetary policy by hiking interest rates and dropping its cautious guidance.
The inflation release will prove a crucial test for the Pound, CPI is forecast to have risen 8.2% year-on-year in June, down from 8.7% previously, with core inflation expected to have fallen to 6.8% from 7.1%.
Currently, markets see a 50bp BoE rate hike at the August meeting as more likely than not, however, this will be dependent on (the) inflation figures.
The rule of thumb is that an undershoot in inflation will result in a weaker Pound and an overshoot in a stronger Pound.
A bruised dollar took respite this morning after suffering its worst weekly drop of the year, as traders waited on economic data and policy decisions before selling it down any further.
Last week's dollar slide began with yen buying, as investors unwound yen-funded positions in emerging markets but extended sharply after softer-than-expected U.S. inflation data leant support to wagers that U.S. interest rates will soon peak.
Hikes are expected from the Federal Reserve and European Central Bank next week, but beyond that market pricing implies the Fed will likely stop, before cuts next year, while in Europe another hike probably beckons.