Sterling Recovers but Ends September Lower

Sterling edged toward $1.33 at the end of September, recovering from a three-month low of $1.32 earlier in the week, supported by stronger-than-expected GDP data and comments from Prime Minister Andy Burnham on the UK-EU relationship. Still, the pound fell 2% against the dollar over the month, as markets expected the BoE to lag the Fed in tightening. Burnham opened the door to potentially rejoining the EU after the next general election and pledged to outline options for closer ties later this year. Meanwhile, revised data showed UK GDP grew 0.5% in Q2, above the previous estimate of 0.4%. BoE policymakers sent mixed signals, with Alan Taylor playing down the need for rate hikes to address the energy shock, while Governor Andrew Bailey and other MPC members indicated they could support higher rates if inflationary pressures persist. In the US, markets trimmed bets on an October Fed hike after Fed's John Williams said there was time to assess incoming data before raising rates again.