GBP/USD: Sterling Snaps Back Above $1.35 as UK Inflation Runs Hot at 3.8% in July

Traders are paring rate cut bets, believing that the uptick in consumer prices might prompt the UK central bank to keep monetary policy unchanged for a while.

🔥 Inflation Surprise Fuels Sterling Rally

• The GBPUSD pair jumped back above $1.35 on Wednesday morning. It was hotter-than-expected UK inflation data that forced traders to rethink their bets on imminent Bank of England rate cuts.
• With consumer prices rising at their fastest pace in 18 months, sterling bulls seized the moment. The pound-dollar rate climbed 0.2%, trading as high as $1.3510 after July’s UK consumer price index came in at 3.8%, beating consensus forecasts of 3.7% and up from 3.6% in June.
• According to the Office for National Statistics, the surge was largely driven by transport costs, particularly air fares and motor fuel, alongside a 4.9% annual rise in food and non-alcoholic beverage prices.
• July’s report marks the fourth consecutive month of accelerating food inflation, keeping headline CPI well above the BoE’s 2% target and forcing traders to scale back expectations for near-term easing.

💥 BoE Rate Cut Bets Take a Hit

• Traders are dialing down aggressive rate-cut expectations, betting the BoE may pause its easing cycle until inflation shows clearer signs of cooling.
• The central bank currently projects inflation to peak at 4% in September, fueled largely by sticky food and energy costs — nearly double its mandated target.
• What you can expect now is BoE adopting a more cautious policy stance, with the pace of future cuts slowing after five reductions since last summer, leaving sterling better supported in the near term.

👀 What It Means for the Pound

• Higher-than-expected inflation tends to bolster sterling’s valuation, as traders assume a tighter policy path from the BoE compared to peers like the Fed and the ECB, both leaning more dovish into year-end.
• With the Cable reclaiming $1.35 and holding above two major SMAs — the 100-, and 200-day — technical momentum suggests room for a retest of $1.36 resistance.
• However, if inflation begins to plateau by September and growth indicators weaken, sterling could quickly lose its upside, especially against a resurgent US dollar if Powell signals fewer Fed cuts at Jackson Hole on Friday.