Pound Hits Lowest Level Since August as Wage Growth Slows

The pound traded just above $1.32, near a seven-month low after a 1.4% June drop against the dollar, pressured by political uncertainty, a stronger greenback, and the Bank of England’s dovish tone. Against the euro, sterling hit a one-year high as the single currency weakened on softer-than-expected European inflation data. Investors are focusing on the ECB’s Sintra Forum for economic and policy signals. Bank of England Governor Andrew Bailey maintained his dovish stance, telling CNBC that UK policymakers see a softening economy and that May’s decision to hold rates at 3.75% reflected this assessment. He also ruled out imminent cuts, citing persistent inflation risks, though he acknowledged progress from falling energy prices. Meanwhile, Fed Chair Kevin Warsh offered no new guidance, with markets still expecting US rate hikes this year. In UK politics, markets assessed the likelihood of Ed Miliband becoming Chancellor, with fiscal concerns easing after Andy Burnham’s discipline pledge.

The pound opened the third quarter at $1.32, near a seven-month low, after a 1.4% drop against the US dollar in June, driven by political uncertainty, a stronger dollar, and the Bank of England’s dovish stance. Investors are closely following the ECB’s Sintra Forum for insights into economic outlooks and policy directions. Bank of England Governor Andrew Bailey stated that the central bank is not rushing to respond to rising oil prices and that inflation is on track to return to the 2% target, though later than desired. He also forecasted inflation to rise to about 3.2% later this year, up from the current 2.8%. Meanwhile, the dollar remained supported by expectations of US rate hikes later in 2026. Elsewhere, investors weighed the likelihood of Energy Secretary Ed Miliband becoming the next Chancellor over centrist Wes Streeting, while concerns about fiscal policy under Andy Burnham, the frontrunner to become the UK's next Prime Minister, eased after he pledged fiscal discipline.

The pound traded around $1.32, close to a seven-month low, as investors remained cautious while awaiting news on the new Treasury leader to replace Rachel Reeves. Andy Burnham, the frontrunner to succeed UK Prime Minister Keir Starmer, who announced his resignation last week, pledged fiscal discipline on Monday. He also vowed to devolve fiscal powers from Westminster to local authorities if elected but offered no further details or potential ministerial appointments, stating he would announce them only after the Labour leadership contest concludes. Sterling was on track for a monthly decline of over 1.5% against the USD, pressured by political uncertainty, a stronger dollar, and shifting rate expectations following the US-Iran ceasefire. With the Strait of Hormuz reopened, oil prices and inflation forecasts have fallen, reducing bets on Bank of England rate hikes, while the US Federal Reserve’s hawkish stance continues to support expectations of US rate increases.