Sterling slides toward $1.35 as oil rises and Fed stays hawkish
Sterling slid toward $1.35 to its weakest since Aug. 19 as higher oil prices and risk aversion pressured the pound. Hawkish Fed signals supported the dollar, with BoE tightening priced by year-end and September Fed hike odds rising.
The British pound fell toward $1.35, its weakest level since August 19, as renewed risk aversion driven by higher oil prices weighed on the currency, while hawkish signals from the Fed continued to support the US dollar.
Brent crude rose as renewed hostilities in the Middle East heightened concerns over further disruptions to regional energy flows.
Meanwhile, markets are pricing around 32 basis points of BoE tightening by year-end, with a November hike seen as almost 70% likely and a second hike by February priced at around 80%.
Rate expectations were further reinforced by the latest British Retail Consortium report, which showed UK shop-price inflation accelerating to its highest level in two years.
At the same time, Fed Chair Kevin Warsh said inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 66% probability of a September rate hike.