Sterling slips as U.S. rate hike bets lift dollar, oil pullback eases inflation pressure

Traders Union
All News
Financial News
Sterling dips on dollar strength

Highlights

Sterling falls 0.1% to $1.327, its lowest since early July, as dollar strength follows increased bets on a U.S. Federal Reserve rate hike.
Brent crude drops 2.6% to $86.08 a barrel, reducing inflation pressures and helped by signs of U.S.-Iran diplomatic engagement.
UK two-year gilt yields fall 3 basis points to 4.352% as soft labor data reinforces expectations the Bank of England will maintain rates on Thursday.

Market moves before central bank decisions

As reported by Reuters, the pound trades near its weakest level since early July at $1.327 on Tuesday, down 0.1% on the day, as the dollar strengthens ahead of the Federal Reserve's policy decision.

Brent crude retreats 2.6% to $86.08 a barrel, extending its fall from last week's spike above $100. Lower oil prices ease inflation concerns, while growing hopes of a resolution to the U.S.-Israeli war on Iran follow comments from U.S. President Donald Trump that Washington is having talks with Tehran.

Rate-sensitive two-year gilt yields also retreat by 3 basis points to 4.352%. The Federal Reserve concludes its two-day meeting on Wednesday, with traders pricing in a nearly 40% chance of a 25-basis-point rate hike, up from about 20% a week earlier, according to LSEG data.

U.S. rate futures show a 95% probability of a quarter-point increase by September. Matthew Ryan, head of market strategy at Ebury, says that with a September hike now fully priced in by futures, the threshold for a hawkish surprise that would meaningfully lift the dollar is high.

UK policy outlook weighs on sterling

Softer labour-market data cements expectations that the Bank of England stands pat on Thursday, adding to pressure on the pound this month. Investors are also showing unease over spending plans under Burnham's new government.

Burnham rules out changes to stamp duty, a tax on home sales, at the next budget due later in the year. He has previously said he may ask people to pay a little more in tax as the country faces spending pressures from an ageing population, the need to rebuild its armed forces and broader investment goals.

Against the euro, sterling is largely unchanged at 0.855 after retreating 1.1% from last week's one-year high. The latest moves underline how UK currency performance remains tied both to domestic fiscal signals and to shifting expectations for U.S. interest rates.

Our earlier GBP/USD outlook noted that pound sterling was trading under persistent selling pressure, with the pair stuck below key moving averages and momentum indicators staying bearish. We also highlighted that traders were watching a near-term range, with resistance around $1.3332 and support near $1.322, where a break lower could signal renewed downside risk.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.