Sterling Slides as Oil Surge and Hawkish Fed Lift Dollar

2026-09-01 07:40 By Joana Ferreira 1 min. read

The British pound fell toward $1.35, its weakest level since August 19, as renewed risk aversion driven by higher oil prices weighed on the currency, while hawkish signals from the Fed continued to support the US dollar.

Brent crude rose as renewed hostilities in the Middle East heightened concerns over further disruptions to regional energy flows.

Meanwhile, markets are pricing around 32 basis points of BoE tightening by year-end, with a November hike seen as almost 70% likely and a second hike by February priced at around 80%.

Rate expectations were further reinforced by the latest British Retail Consortium report, which showed UK shop-price inflation accelerating to its highest level in two years.

At the same time, Fed Chair Kevin Warsh said inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 66% probability of a September rate hike.



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Sterling Slides as Oil Surge and Hawkish Fed Lift Dollar
The British pound fell toward $1.35, its weakest level since August 19, as renewed risk aversion driven by higher oil prices weighed on the currency, while hawkish signals from the Fed continued to support the US dollar. Brent crude rose as renewed hostilities in the Middle East heightened concerns over further disruptions to regional energy flows. Meanwhile, markets are pricing around 32 basis points of BoE tightening by year-end, with a November hike seen as almost 70% likely and a second hike by February priced at around 80%. Rate expectations were further reinforced by the latest British Retail Consortium report, which showed UK shop-price inflation accelerating to its highest level in two years. At the same time, Fed Chair Kevin Warsh said inflation has not slowed meaningfully and that the Fed still has “work to do,” prompting markets to price in a 66% probability of a September rate hike.
2026-09-01
Pound Slips on Stronger US Dollar
The British pound fell toward $1.35, its weakest level since August 19, as hawkish Fed remarks supported the US dollar, while lower Brent crude prices eased UK inflation concerns and pushed expectations for the next BoE rate hike into 2027 from late 2026. In his first major speech since becoming chair in May, Warsh warned that inflation has not meaningfully slowed and said policymakers need clearer evidence that underlying price pressures are easing; otherwise, the Fed still has “work to do.” Meanwhile, LSEG data showed markets pricing around 24 basis points of BoE tightening by December and 36 basis points by February 2027. UK inflation rose to 2.9% in July, driven by higher household energy bills, and is expected to climb further toward year-end. However, the labor market has remained subdued, which could make the BoE more cautious about tightening policy in the near term.
2026-08-28
Pound Falls as BoE Rate Hike Bets Shift to 2027
The British pound fell below $1.36, retreating from six-month highs reached last week, as a recent decline in Brent crude prices eased inflation concerns and led markets to push expectations for the next Bank of England rate hike into 2027 from late 2026. LSEG data showed around 24 bps of tightening priced in by December and 36 bps by February 2027. Less than 4 bps is priced in for the BoE's September meeting, implying roughly a 15% chance of a hike. Most economists expect rates to remain at 3.75% this year, despite markets previously pricing a hike amid concerns over a potential escalation in the US-Iran conflict. UK inflation rose to 2.9% in July, driven by higher household energy bills, and is expected to climb further toward year-end, while the labor market remained subdued. Investors now await Fed Chair Kevin Warsh's Jackson Hole speech on Friday for further clues on the US rate outlook.
2026-08-27