The value of the pound rose in early European trading after an unexpected jump in UK inflation, which complicates the picture for the Bank of England at its next meeting on interest rates.
Sterling was up 0.2% against the dollar at $1.3408, although it remained flat against the euro, which was worth 86.7p.
David Morrison, analyst at Trade Nation, said: “Once again, the UK inflation numbers are going in the wrong direction.
“Sterling jumped on the news suggesting that the Bank is going to struggle to justify a rate cut next month.”
The annual inflation rate in the UK unexpectedly rose to 3.6% in June from 3.4% in May on higher transport prices, particularly fuel.
Read more: UK inflation unexpectedly rises in June on higher fuel prices
The Bank of England is still expected to cut interest rates in August but analysts said the case is weakening after the latest inflation figures.
Guy Foster, strategist at RBC Brewin Dolphin, said: “This was unhelpful news for the Bank of England, which wants to cut interest rates to support growth.
“If interest rates don’t come down, the government interest bill will be higher and the pressure for higher taxes will become more acute.”
The US dollar index (DX-Y.NYB), which tracks the greenback’s value against six major currencies, was down by around 0.2% to 98.45 at the time of writing.
Gold prices edged higher on Wednesday as a weakening US dollar and easing bond yields provided support, while investors weighed fresh inflation data and continued uncertainty over US trade policy.
Gold futures were 0.3% higher at $3,345.80 an ounce, while spot gold was just above the flatline at $3.339.95 per troy ounce after touching a three-week high of 3,385.90 earlier this week.
“Many countries are still negotiating with the US on the tariffs. There are still a lot of uncertainties in the market and many are looking for safe havens,” Brian Lan, managing director at GoldSilver Central, Singapore, told Reuters.
Read more: Bank of England governor warns tariff hikes risk ‘fragmenting the world economy'
The latest US inflation report, released on Tuesday, showed consumer prices increased in June by the most in five months, driven by higher costs for a range of goods. The data suggests tariffs are beginning to feed through to consumer prices, which could complicate the Federal Reserve’s path on interest rates.
Despite the uptick in inflation, US president Donald Trump repeated his call for lower borrowing costs, insisting that “consumer prices were low and the Fed should bring down interest rates now.”
