Yahoo Finance Pound rallies against dollar and euro, but UK economy not out of the woods yet
The pound headed higher against the euro (EURGBP=X) and the dollar (GBPUSD=X) on Tuesday as traders anticipate fresh inflation data dropping on Wednesday.
The pound briefly hit $1.3126 against the dollar, just shy of 15-month highs seen earlier in the week. Meanwhile, it was at €1.16 to the euro.
The moves come ahead of the CPI reading for June, which is expected to signal inflation dropping. Predictions have stated expectations of a fall to about 8.2% in the 12 months to June, down from the 8.7% recorded in April and May.
Read more: How does inflation impact currency pairs, like the USD/GBP?
This chimes with data released by Kantar on Tuesday, which showed slowing inflation of groceries, as supermarkets ramp up deals and consumers adjust spending. Food price inflation slowed for the fourth month in a row in June.
Despite this, analysts say the economy is not out of the woods yet.
"Although it is widely anticipated that we will see improvement in the topline numbers, it is not going to be good enough to deter the BOE’s plan to hike interest rates," said Naeem Aslam, chief investment officer at Zaye Capital Markets.
"In addition, there is just so much disparity in terms of inflation readings in the US and the UK, and it is clear that the Bank of England has a lot more to lose in terms of reputation."
The currency moves also come as UK support to rejoin the EU has surpassed 50% for the first time since the Brexit vote seven years ago, according to new polling from YouGov.
Read more: FTSE 100 and European stocks tread water ahead of slew of corporate earnings
Some 51% said that they would vote for the UK to become an EU member again, while 32% said they’d stay out, according to the survey conducted last week.
The proportion in favour of rejoining has risen 11 points since January 2021, when Brexit formally took place.
Watch: Supermarket deals drive down cost of grocery inflation for fourth month in a row
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