Sterling slips to one-week low as traders trim Bank of England rate hike bets
By Aboki Forex —
The British pound fell to a one-week low against the dollar and the euro on Tuesday, as markets scaled back expectations for a Bank of England rate hike this year. LSEG data showed traders pricing just 24.7 basis points of tightening by December, meaning a standard 25-basis-point increase is no longer fully expected.
Pound retreats after six-month high
Sterling slipped 0.1% to $1.3578, retreating from the six-month high reached the previous week. Against the euro, the pound weakened by nearly 0.1% to 85.75 pence per euro. Lower oil prices have helped push UK gilt yields lower, reducing the perceived need for higher interest rates.
UK two-year gilt yields eased to about 4.36% as Brent crude hovered near a two-week low. Lower energy prices could ease inflation pressure and reduce the need for tighter monetary policy.
Most economists expect UK interest rates to remain unchanged in 2026, according to the source.
Jackson Hole and fiscal concerns in focus
Investors are turning their attention to Jackson Hole, where Federal Reserve Chair Kevin Warsh will speak. Markets will scrutinise his remarks for clues about the U.S. monetary-policy outlook and the potential impact on the dollar. Any decline in expectations for U.S. rates could weaken the dollar and offset some pressure on GBP/USD.
Investors are also focused on Parliament’s return and how the government plans to fund its policies ahead of the October Budget. Elevated UK public debt remains an important concern.
Reduced expectations for BoE tightening are a negative factor for sterling. However, a softer dollar could cushion the pound’s fall if U.S. rate expectations also shift lower.