Sterling treads water at 3-month low after weekly drop on dollar rally
FXB•Sterling held near a three-month low against the euro and dollar, with the pound set for a 1.2% weekly decline against the dollar, its biggest since May. Traders raised expectations for further Federal Reserve rate hikes as energy prices rose.
1. Pound near recent lows
Sterling was little changed at $1.322 on Friday after touching $1.32 on Thursday, its lowest level since June 29. It was on track for a 1.2% weekly fall against the dollar, following a 1% decline the previous week.
2. Rate expectations diverge
The dollar rallied as traders increased bets on further Federal Reserve rate hikes, with rising energy prices and strong economic growth prompting Fed officials to discuss the possibility of more increases. The Bank of England held rates steady last week, while flagging possible increases if the US-Israeli war on Iran drags on.
3. Pound faces BoE uncertainty
The pound also weakened against the euro, which reached 86.11 pence. ING currency strategist Francesco Pesole said sterling is likely to struggle in the coming months because it is doubtful the Bank of England will raise rates sharply. Money markets expect about 35 basis points of BoE tightening this year and more than 100 basis points by the end of 2027, while economists broadly expect more limited action.
