Pound Slips as Oil Surge Weighs on UK Outlook

The pound eased back to $1.335, retreating from a three-week high, as rising oil prices stoked inflation concerns and boosted bets on Bank of England rate hikes, darkening the UK’s economic outlook. Brent crude climbed to a two-week high after fresh US strikes in Iran, raising doubts over the peace deal’s stability and intensifying inflationary pressures. US President Trump heightened tensions by declaring at NATO’s Ankara summit that, as far as he is concerned, the Iran ceasefire is over. Investors now fully price in a 25-basis-point BoE rate hike by year-end, up from a 75% probability before Trump’s remarks. Politically, Andy Burnham, the frontrunner to replace Keir Starmer as prime minister, has yet to appoint a finance minister, with former energy minister Ed Miliband emerging as the likely pick. Sterling’s resilience amid recent political turmoil suggests much of the negative news has already been factored in.

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 $73 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.