Pound Holds at Six-Month Highs

The British pound traded above $1.36 in the final full week of August, near its strongest level since mid-February, as the US dollar faced pressure following the US Treasury’s unexpected plan to at least double its purchases of longer-dated government bonds. Investors also awaited details on Iran sanctions, while Fed Chair Kevin Warsh’s remarks at Jackson Hole on Friday are expected to offer insights into the interest rate outlook. In the UK, money markets continue to price in one Bank of England rate hike by year-end, with another quarter-point increase fully anticipated by early 2027. Recent data showed UK inflation accelerating to 2.9% in July, the highest since March, while core inflation exceeded expectations at 2.6%. PMI readings indicated faster business activity expansion, and consumer confidence reached a two-year high in August, providing an early boost for new Prime Minister Andy Burnham. However, the UK remains vulnerable to high inflation driven by the Iran conflict.

The British pound strengthened above $1.363, reaching its highest level in six months as a weaker US dollar boosted major currencies. Sterling benefited from the sharp dollar decline after the US Treasury unexpectedly announced plans to at least double its purchases of longer-dated government bonds. The move is aimed at supporting liquidity and containing elevated long-term borrowing costs, which contributed to a broad rise in G10 currencies. Domestic factors have also supported sterling, with UK inflation remaining relatively high and reinforcing expectations for tighter monetary policy. Consumer price inflation accelerated to a four-month high in July, although recent labour-market data indicated some cooling in employment conditions. Markets continue to price in one Bank of England rate increase by the end of this year, with another quarter-point hike fully reflected by April next year.

The British pound strengthened to around $1.356, remaining close to a three-month high as investors assessed the latest UK inflation and labour-market data. Consumer inflation accelerated to 2.9% in July from 2.6% in June, matching expectations, while core inflation remained unchanged at 2.6%. The figures prompted traders to modestly reduce expectations for a Bank of England rate hike later this year. Earlier labour-market data showed unemployment holding at 4.9%, above forecasts, while payroll employment declined by 86,000 year-on-year. Regular earnings growth remained relatively firm at 3.5%. Despite signs of resilience in the UK economy, elevated oil prices and uncertainty surrounding the US-Iran conflict continue to pose risks to the inflation outlook. Meanwhile, the dollar index remained near multi-month lows, providing additional support to sterling. Softer US economic data led investors to scale back expectations for further Federal Reserve tightening, weighing on the dollar.