Sterling Eases as Burnham Takes Over

Sterling was little changed, trading just above the $1.34 mark and hovering near its strongest level since September 15, as investors positioned for the Bank of England’s expected return to monetary tightening later this week, while uncertainty ahead of Tuesday’s US midterm elections weighed on the US dollar. The Bank of England is widely expected to deliver its first interest rate hike since 2023 on Thursday, amid mounting inflationary pressures stemming from the Iran war and signs of resilience in the UK economy. However, policymakers are also anticipated to push back against market expectations of several further rate increases next year. Across the Atlantic, US voters head to the polls to deliver their verdict on the first two years of President Donald Trump’s second term. Polls and nonpartisan analysts suggest Democrats are favored to regain control of the House of Representatives, while the outcome of the Senate race remains uncertain.

The pound rose above $1.34, reaching its highest level since mid-September, as investors positioned for the Bank of England’s expected return to monetary tightening later this week. Meanwhile, renewed declines in oil prices and uncertainty surrounding Tuesday’s US midterm elections weighed on the US dollar. The Bank of England is widely expected to deliver its first interest rate hike since 2023 on Thursday, amid mounting inflationary pressures linked to the Iran war and signs of resilience in the UK economy. However, policymakers are also expected to push back against market expectations of several additional rate increases next year. Meanwhile, Chancellor John Healey’s first budget largely met market expectations, offering few surprises. Elsewhere, oil prices declined as reports suggested US President Donald Trump was willing to give diplomacy with Iran more time before considering further military action after Tuesday’s midterm elections.

The pound climbed above $1.34, reaching its highest level since mid-September and gaining around 1% this month. This marks its first monthly advance since August, supported by the government’s budget and growing expectations of a Bank of England rate hike in November. Chancellor John Healey delivered his first budget on Wednesday, with spending plans largely meeting expectations and offering few surprises for markets. He said the government would use part of its fiscal headroom, now reduced to £15 billion from £24 billion, to meet its main fiscal target while continuing efforts to restore public finances amid the economic fallout from the Iran conflict. Money markets are almost fully pricing in a BoE rate hike on November 5, followed by further increases in February and July, with a 50% chance of another by December 2027, as persistent inflation above target, rising bond yields and stronger-than-expected economic data have reinforced expectations of tighter policy.