The sterling gained 0.5% against the U.S. dollar on Wednesday, now valued at $1.1546. This comes after the British currency fell to a three-decade low of $1.14070 last week. In addition, the British pound also strengthened against the euro by 0.2%.
Following a decline in fuel prices, UK inflation cooled down in August, dropping to 9.9%. This comes as a major relief to the UK households, with consumer spending being tightened after the nation was hit by 40-year high inflation the previous month.
As a result of the surge in inflation, the sterling was weakened, thereby increasing the cost of imports and bringing in more imported inflation. Other issues that weakened the pound included concerns of a looming recession as well as potential tax cuts and increased public spending, both of which would increase price pressures.
The U.S. dollar declined as the yen strengthened following reports that a rate check had been conducted by the Bank of Japan. Following the decline, the U.S. dollar index reported a 0.2% decline when measured against six major peers, including the yen.