Pound Nears Three-Week High

The pound traded just shy of $1.34, near its strongest level since June 16, and reached a fresh one-year high against the euro as investors ramped up bets on Bank of England rate hikes. Rising oil prices, with crude above $72 per barrel after Strait of Hormuz attacks, and inflation concerns drove the shift, with markets pricing in a 76% chance of a hike by year-end and over 50% odds for November. Bank of England Governor Andrew Bailey recently reiterated that inflation remains on track to hit 2%, though later than previously forecast, and ruled out near-term rate cuts. Politically, Andy Burnham, the frontrunner to succeed Keir Starmer as prime minister, has yet to name a finance minister, with former energy minister Ed Miliband seen as the likely choice. Sterling’s resilience amid recent political turmoil suggests much of the negative news has already been priced in.

The pound steadied at $1.335, ending a seven-day winning streak and nearing its highest in two weeks, as the dollar regained some ground following last week’s selloff after weak US jobs data. Sterling rose 1.1% last week, its best performance in three months, as the USD fell broadly after the US employment report revealed fewer jobs added in June, prompting investors to scale back bets on a Fed rate hike this month. The recent drop in oil prices has also reduced pressure on the Bank of England to raise borrowing costs. Markets now price in a 70% chance of just one rate rise this year, down from two expected a few weeks ago. Governor Andrew Bailey confirmed last week that inflation remains on track to hit 2%, though later than previously forecast, and ruled out imminent rate cuts. In UK politics, Andy Burnham, the frontrunner to succeed Keir Starmer as prime minister, has yet to name a finance minister, with former energy minister Ed Miliband seen as a likely candidate.

The pound held at $1.335, its highest in two weeks, with a 1% weekly gain as the dollar weakened on disappointing US jobs data. The US added just 57,000 jobs last month, far below forecasts, while unemployment fell to 4.2% as workers left the labor force. The pound’s gains were limited by the Bank of England’s dovish stance. Governor Andrew Bailey highlighted a slowing UK economy and stated that the BoE would not rush to respond to rising oil prices. He noted that inflation remains on track to reach 2%, though later than previously expected, while also ruling out near-term rate cuts. Meanwhile, Fed Chair Kevin Warsh acknowledged easing inflation expectations but reaffirmed the Fed’s commitment to its 2% target. In UK politics, markets weighed the likelihood of Ed Miliband becoming Chancellor, with fiscal concerns easing after Andy Burnham’s discipline pledge. Sterling is unlikely to see major political impact until late July, when Burnham is set to become Prime Minister.