- Investors assess the chance of more aggressive rate cuts
- Economists say jobs data holds more weight in shaping BoE policy
- Euro/Sterling within striking distance of 3-month high
July 16 (Reuters) - The pound edged higher against a weakening dollar and fell versus the euro, as investors assessed whether the Bank of England might cut rates more aggressively than the currently expected pace of 25 basis points per quarter.
Britain's annual rate of consumer price (CPI) inflation unexpectedly rose to its highest in over a year at 3.6% in June.
"The bar to cutting rates faster still feels fairly high," said Francesco Pesole, a forex strategist at ING.
"The risks associated with tomorrow's jobs numbers are probably preventing any larger hawkish repricing in the Sonia curve (after CPI data) and, by extension, keeping the British pound's gains contained," he added.
Data showed last week Britain's economy contracted unexpectedly for a second month running in May.
Sterling was last up 0.05% at $1.3390, after hitting $1.3397 on Tuesday, its lowest level since June 23.
The dollar edged down against the euro and yen on Wednesday, after hitting multi-week highs the day before, as investors awaited producer price data later in the session for further clues about potential tariff-driven inflation.
"Today's data won't give the Monetary Policy Committee (MPC) any sense of comfort on the inflation side," said Sanjay Raja, chief UK economist at Deutsche Bank, arguing that tomorrow's job figures "may hold more weight when it comes to shaping the monetary policy outlook."
"The bar for a dovish surprise on tomorrow's labour market data will likely rise on the back of today's inflation reading."
Markets priced in an 80% chance of a 25 bps rate cut in August, more than 50 bps by year-end and 75 bps by April 2026.
Yields on 10-year gilts rose 1.5 bps to 4.65%.
BoE Governor Andrew Bailey, on Tuesday, focused his speech on the International Monetary Fund's role in addressing the accumulation of risky imbalances in the global economy, many of which originate from the United States and China.
Sterling dropped 0.1% versus the euro to 86.75 pence . It hit 86.96 per euro on Tuesday, its lowest level since April 11.
Reporting by Stefano Rebaudo; Editing by Louise Heavens
Source: Reuters