24 May 2023
Sterling declined on Wednesday following the release of data showing UK inflation cooled less than forecast last month.
The Pound initially edged up after the data, yet at the time of writing was down 0.17% at $1.239.
In April, UK year-on-year inflation decelerated to 8.7% from 10.1% in March. According to economists surveyed by Reuters news agency, a decline of 8.2% was forecast.
Whereas core inflation – not taking into account energy and food costs – unexpectedly rose to a 31-year high of 6.8%.
"The reason that you haven't seen more of a reaction today is the context," said global markets strategist at eToro, Ben Laidler.
"The Pound's already had a big rally this year … and the Dollar's already on the front foot. The debt ceiling showdown is just picking up steam, and the Dollar is picking up some safe-haven flows."
Debt ceiling negotiations continued on Tuesday, showing no indications of progress, the Reuters report adds.
This helped to drive the greenback to a two-month high on Wednesday. This Dollar strength has seen Sterling fall around 2% since reaching a one-year top of $1.268 on 10th May.
Earlier this month, the Bank of England hiked interest rates to 4.5%, whilst on Wednesday, traders see a 94% chance of increasing borrowing costs by 25 basis points next month.
Elsewhere, the Euro initially declined against the Sterling following the release of the inflation data but shifted course and, at the time of writing, gained 0.2% to 86.92 pence.
Furthermore, a number of analysts have increased the chance of high inflation in the UK, soon becoming problematic for the Pound.
"The (fall in the) headline number looks great, but you scratch the surface, and there's nothing to be happy about," Laidler added.
"If you're the Bank of England, I think it's pretty much the worst-case scenario."