Sterling Falls on Thursday

The British pound eased below $1.35, as investors balanced resilient UK economic data against persistent geopolitical uncertainty in the Middle East. UK GDP expanded 0.4% quarter-on-quarter in the second quarter, matching economists’ expectations and following 0.6% growth in the first quarter. June activity was stronger than anticipated, with monthly GDP rising 0.3%. However, household consumption growth slowed to 0.2%, highlighting continued pressure on consumers. Meanwhile, negotiations aimed at ending the US-Iran conflict and reopening the Strait of Hormuz remained stalled, with shipping disruptions and attacks continuing to weigh on sentiment. The Bank of England left interest rates unchanged in July, with Governor Andrew Bailey saying disinflation remained on track despite persistent external risks.

The British pound traded around $1.349, remaining close to its highest level since July 15, as investors assessed mixed signals surrounding US-Iran negotiations and the prospects for reopening the Strait of Hormuz. Iran’s Foreign Minister Abbas Araghchi said an agreement with Oman to establish a shipping route through the strait was “very close,” but ruled out direct talks with the US for now and cautioned that any deal would not immediately restore shipping. In the meantime, last week’s surprise contraction in US employment reduced expectations of a near-term Federal Reserve rate hike. In the UK, the Bank of England left rates unchanged in July, with Governor Andrew Bailey saying disinflation remained on track. UK labour-market data from KPMG and REC showed some improvement, with permanent hiring stabilising and temporary vacancies rising for the first time in two years. However, starting salary growth accelerated to a six-month high, although it remained below its long-term trend.

The British pound rose to $1.350 on Friday, its highest level since July 15, while the dollar weakened sharply as investors reduced expectations of a Federal Reserve rate hike in September following a weaker-than-expected US jobs report. Also, easing oil prices reduced concerns over inflation and the potential impact of higher energy costs on the UK economy. President Donald Trump said negotiations between Iran and Oman over the Strait of Hormuz were “moving along,” although a deal has yet to be finalized as details remain under discussion in Tehran. A reopening of the strategic waterway could support energy flows and potentially pave the way for broader talks to end the conflict. Lower energy prices have reinforced expectations that the Bank of England will maintain a gradual approach to monetary policy. At its latest meeting, the BoE left rates unchanged, while Governor Andrew Bailey said the disinflation process remained on track despite ongoing external uncertainties.