Pound Holds Near July Low on Dollar Strength

The pound traded around $1.33, remaining near its weakest level since July 1, as investors assessed a batch of stronger-than-expected UK data while the US dollar stayed supported by rising Middle East tensions and fresh US tariff measures. UK retail sales rose 1% in June, beating expectations for a 0.3% decline, helped by warmer weather and increased spending during the football World Cup. Consumer confidence also improved to a six-month high in July, while the Bank of England's Decision Maker Panel survey showed easing inflation expectations. Meanwhile, the S&P Global PMI indicated UK business activity returned to growth, exceeding forecasts. On the trade front, the US announced new tariffs of 10% to 12.5% on dozens of countries, including the UK and EU. Britain said the measures would not negatively affect UK businesses, with the existing UK-US trade agreement remaining in place and delivering improved terms on some exports, including whisky and medical technology.

The British pound weakened to $1.336 on Thursday, its lowest level in ten days, as investors digested fresh fiscal announcements and a more hawkish interest rate outlook. Finance Minister John Healey warned about rising business costs alongside persistent cost-of-living pressures, reinforcing concerns over the UK's inflation outlook. Earlier in the day, Prime Minister Andy Burnham unveiled a 20% reduction in business rates for pubs, clubs, and live music venues from April, the third announcement of measures in three days to support businesses and households. He also reaffirmed his commitment to maintaining fiscal discipline. Meanwhile, oil prices climbed to near two-month highs amid escalating tensions in the Middle East, adding to inflation risks. As a result, money markets are now pricing in nearly two quarter-point interest rate hikes from the Bank of England by the end of the year.

Sterling remained below $1.34, its lowest level in more than a week, after UK inflation slowed more than expected, reducing the prospect of the Bank of England raising interest rates this month. Annual inflation eased to 2.6% in June, the lowest since March 2025 and below forecasts of 2.7%, driven by lower transport and food prices. However, core inflation (2.6%) and services inflation (3.6%) both came in slightly above expectations. Businesses remain cautious, with CBI economist Martin Sartorius warning that inflation could pick up again in the coming months. Meanwhile, new Chancellor John Healey welcomed the softer inflation reading but said more support is needed, as the government announced measures including lower VAT on electricity bills and a £2 cap on single bus fares across England from January. Elsewhere, Middle East tensions escalated after President Donald Trump warned of further strikes on Iran and pledged retaliation if Iran-backed Houthi rebels disrupt Red Sea shipping.