Sterling reached a four-month top on Thursday following remarks from Bank of England officials and stronger-than-expected GDP figures, prompting traders to scale back expectations of an August interest rate cut as they await pivotal US inflation data.

The Pound rose by 0.16% to $1.2864, reaching its highest level since early March, following comments from Bank of England chief economist Huw Pill on Wednesday, who noted persistent price pressures. 

In addition, Thursday's data revealed that British economic output grew by 0.4% in May, surpassing expectations.

Pill stated that the timing of a rate cut was uncertain. Futures markets currently indicate that traders see approximately a 50/50 probability of the Bank of England reducing rates at its meeting on 1st August.

The comments from officials and Thursday's GDP data bolstered support for the Pound, according to MUFG senior FX analyst Lee Hardman.

“The minutes from the BoE's last policy meeting in June had indicated that some of the seven MPC members who voted to keep rates on hold thought the decision was finely balanced.”

Yet “the overall tone of (Pill's) comments suggested that he is not yet ready to change his vote in favour of a rate cut at the August MPC meeting,” he went on to say.

Furthermore, the Pound reached its strongest level against the Euro in a month, with the single currency at 84.21 pence at the time of writing. 

Meanwhile, against the dollar, the Euro was 0.1% up to $1.0840.

However, the most anticipated event of the day for currency markets is the release of US inflation data, which will either confirm or challenge market expectations that the Federal Reserve is leaning towards a rate cut in September, Reuters reports.

Forecasters anticipate that core inflation increased by 0.2% month-over-month in June, which would bring the annual figure to 3.4%.

“That outcome will obviously build confidence that the FOMC will be able to cut rates fairly soon, so I think a 0.2% (rise) may perhaps push the Dollar a bit lower modestly if market pricing for (a) September (cut) increases,” stated Carol Kong, Commonwealth Bank of Australia currency strategist.