Sterling jumped more than 1% against the US dollar on Wednesday after less-than-expected US inflation data undermined expectations for a 75 basis point increase in interest rates from the Federal Reserve in September.
Traders reduced their bets that the US central bank will decide on a third consecutive increase of 75 basis points at its meeting next month, after consumer prices did not register any increase at all in July from the previous month.
Sterling jumped 1.4% against the falling green currency to reach $1.2250, its highest level in eight days.
Against the European currency, sterling rose 0.25% to 84.29 pence per euro.
And the British currency is one of the worst-performing currencies among advanced economies this year, with a decline of nearly 10% against the dollar in 2022 amid bleak prospects for the UK economy.
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