Sterling Climbs to 1-Month High after Budget Plans

Sterling recovered above the $1.34 level, attempting to claw back last week's losses as falling oil prices eased market concerns and investors awaited key economic data due later this week. Brent crude fell below $95 a barrel after US President Donald Trump said it was “highly unlikely” he would authorize further strikes on Iran if negotiations over its nuclear programme and the reopening of the Strait of Hormuz made significant progress. Meanwhile, investors are looking ahead to the UK's third-quarter GDP report on Thursday, which is expected to show economic growth of a solid 0.7%, supported by strong services output. Elevated UK government bond yields and expectations of further Bank of England rate hikes are also helping underpin sterling's appeal. Across the Atlantic, attention will turn to Tuesday's US CPI report, which could provide further clues about the Federal Reserve's monetary policy outlook and the timing of potential interest rate hikes.

Sterling fell below $1.335, pulling back from near two-month highs, after a strong US jobs report lifted the dollar. The greenback was already benefiting from safe-haven demand amid a global technology selloff, as sentiment toward AI stocks weakened on concerns that a Democratic sweep in the congressional elections could lead to tighter regulation and slow the industry's expansion. At the same time, markets continued to digest the implications of the Bank of England's policy decision on Thursday, where the central bank raised interest rates for the first time in more than three years. Governor Andrew Bailey indicated that further increases may be required unless the war in Iran comes to an end. In response, investors have ramped up expectations for additional monetary tightening, with three more rate hikes now fully priced in by November 2027. The central bank also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario envisages a sharper rise to 6.2% in Q3.

Sterling fell below $1.34 after briefly breaking above $1.35 earlier this week, its highest level since mid-September, as a global tech selloff triggered renewed demand for the safe-haven US dollar. Sentiment toward AI stocks deteriorated amid concerns that a Democratic sweep in the US midterm elections could usher in tighter regulation and curb the industry’s rapid expansion. Meanwhile, markets continued to digest the implications of the Bank of England’s policy decision on Thursday. The BoE raised interest rates for the first time in more than three years, with Governor Andrew Bailey indicating that further increases may be required unless the war in Iran comes to an end. In response, investors have ramped up expectations for further monetary tightening, with three additional rate hikes now fully priced in by November 2027. The central bank also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario envisages a sharper rise to 6.2% in Q3.