The British Pound hovered just above a 5-month trough against the Canadian Dollar on Wednesday, as lower-than-expected CPI inflation in the UK raised some questions about the Bank of England’s rate outlook.
Annual consumer inflation in the United Kingdom decelerated to 6.7% in August from 6.8% in July, while confounding market expectations of an increase to 7%.
It has been the lowest inflation rate since February 2022, as food inflation slowed and the cost of accommodation services dropped.
Meanwhile, core CPI inflation, which does not take into account volatile categories such as energy and food, decelerated to 6.2% in August, or the lowest level since March, from 6.9% in July.
“The surprise fall in U.K. inflation triggered a kneejerk selloff in sterling, as today’s data cements the expectation that the Bank of England’s next rate hike could also be its last,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, wrote in an investor note.
The Bank of England is expected to deliver its 15th consecutive interest rate hike at its policy meeting tomorrow, which would bring borrowing costs to a fresh 2008-high of 5.5%.
As of 7:26 GMT on Wednesday GBP/CAD was edging down 0.35% on the day to trade at 1.6605. Yesterday the minor Forex pair went down as low as 1.6590. The latter has been the pair’s weakest level since April 18th (1.6560).
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