Sterling slipped back towards $1.30 today, adding to falls the previous day after weak inflation data poured cold water on expectations that the Bank of England will hike rates this year.
The pound had risen above $1.31 to ten-month highs earlier in the week as the dollar fell across the board, and as investors bet that the 25-basis-point cut in British interest rates after last year’s vote for Brexit could be reversed in the coming months.
But BoE policymakers have made it clear that any monetary tightening will be data-dependent, and Tuesday’s below-forecast consumer price numbers therefore fed doubt that rates could be tightened in the coming months.
Having priced in a more than 50-percent chance of a 2017 hike before the data, investors are now pricing in only around a 40-percent chance.
Traders are also eyeing Thursday’s UK retail sales data.