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 tied to higher oil prices weighed on the currency and hawkish Federal Reserve signals supported the US dollar. Brent crude rose after renewed hostilities in the Middle East raised concerns about further disruptions to regional energy flows. Markets are pricing around 32 basis points of Bank of England tightening by year-end, with a November hike seen as almost 70% likely and a second hike by February priced at around 80%. The latest British Retail Consortium report showed UK shop-price inflation accelerating to its highest level in two years.
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.