Sterling Hits Two-Week High

The pound climbed to $1.33, a two-week high against the dollar, as investors embraced riskier assets amid signs of progress in indirect US-Iran talks. Sterling also hit a one-year high against the euro, supported by broad euro weakness following softer-than-expected European inflation data. Qatar announced the next US-Iran meeting would be scheduled as soon as possible, while oil prices continued to fall as more shipments passed through the Strait of Hormuz. Investors also digested remarks from central bankers at the ECB’s Sintra Forum. Bank of England Governor Bailey kept a dovish stance, noting a softening UK economy but ruling out imminent rate cuts due to persistent inflation risks. Meanwhile, Fed Chair Warsh acknowledged easing inflation expectations in recent weeks, though he reaffirmed the Fed’s commitment to returning inflation to its target. UK political developments are not expected to impact sterling until late July, when Andy Burnham is set to become Prime Minister.

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.