Sterling heads for steepest weekly drop since September as dollar strength builds
Rising U.S. Treasury yields and firmer expectations for further Federal Reserve tightening keep pressure on sterling at the end of the week. The pound is little changed on Friday, but it remains on track for a fourth straight daily decline against the dollar and its biggest weekly fall since September.
Highlights
- Sterling is up 0.05% at $1.323 on Friday but heads for its largest weekly decline since September due to a strong dollar.
- UK growth data matched expectations, supporting last week's Bank of England rate hike, with markets pricing in an 85% chance of another increase in December.
- Sterling edges higher to 83.55 pence per euro, near its strongest since May 2025, while UK inflation data next week could further influence rate expectations.
Dollar moves and rate outlook pressure sterling
As reported by Reuters, sterling is up 0.05% at $1.323 on Friday, but the currency remains set for its largest weekly decline since September as the dollar stays near 19-month highs.The weekly slide is largely driven by the U.S. side of the equation. The greenback has strengthened steadily in recent days after hotter-than-expected inflation data and hawkish comments from several Fed officials reinforced expectations of further interest-rate tightening. Treasury yields also rise after President Donald Trump says the United States does not need a deal with Iran.
Nick Rees, head of macro research at Monex, says U.S. producer price data due later on Friday is unlikely to significantly move money markets. He adds that, in the absence of further catalysts, the pound should see some stability.
UK data supports Bank of England path
UK economic growth data released on Thursday matches expectations and supports the Bank of England's decision last week to raise interest rates. Markets are currently pricing in roughly an 85% chance of another rate increase in December.Rees says British inflation data due next Friday is likely to come in above consensus, which could push markets further toward expecting a 25-basis-point increase at the next meeting. Even so, he says Monex expects the Bank of England to stay on hold in 2027 because of growth and fiscal risks facing the UK economy.
Against the euro, sterling edges higher to 83.55 pence, trading around its firmest level since May 2025.
As we noted earlier, hot inflation data helped trigger a 1.03% S&P 500 drop and heightened volatility.
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