The pound reached its highest levels in nearly two years against the euro and around one year against the dollar on Wednesday, following stronger-than-expected UK services inflation data for

June, which led markets to reduce expectations for an August rate cut.

The euro fell 0.1% to 83.92 pence, its lowest since August 2022, while the pound gained 0.13% against the dollar, rising to $1.299.

Official data showed British inflation held at 2.0% year-on-year last month, exceeding the 1.9% forecast by analysts polled by Reuters. Services inflation, closely watched by the market, stood at 5.7% year-on-year, above the expected 5.6%.

Higher-than-expected hotel prices contributed to the inflation reading, highlighting the Bank of England's concerns about price pressures in the services sector.

"Today’s inflation data won’t be what the doctor ordered... This marked a third consecutive month where services CPI beat expectations," said Sanjay Raja, chief UK economist at Deutsche Bank. "Undoubtedly, today’s services print raises the bar for an August rate cut," he added.

Raja pointed to rising live music and accommodation prices, speculating that "it’s certainly very possible that some Taylor Swift effects were at play here," potentially influencing BoE rate setters to overlook some of the inflation increase, as Taylor Swift has been touring in Britain.

Despite the data, rate futures indicated that investors saw a roughly one-in-three chance of a BoE rate cut on August 1, the date of its next scheduled monetary policy announcement, down from nearly 50-50 before the inflation data.