Sterling Steady Ahead of UK's Healey Speech

The British pound edged higher toward $1.355 as investors digested Chancellor John Healey’s first major speech ahead of the Oct. 28 budget. Healey pledged to maintain fiscal discipline and restore the UK’s credibility in international bond markets, while outlining plans to boost regional growth by using institutions including the National Wealth Fund and British Business Bank to attract private investment. Higher borrowing costs, driven by renewed inflation concerns amid the US-Iran war and uncertainty over Prime Minister Andy Burnham’s spending plans, are eroding the government’s fiscal headroom and fueling expectations of tax increases in the budget. Meanwhile, oil prices approached seven-week highs after US strikes on Iranian oil tankers. On the economic data front, UK firms increased full-time hiring in August for the first time in four years, while house prices fell year-on-year for the first time since November 2023.

The British pound was little changed, trading just above $1.35, as investors awaited UK Chancellor John Healey’s first major speech on Monday, ahead of next month’s budget announcement. Oil prices moved closer to seven-week highs after the US struck three Iranian oil tankers over the weekend, destroying one, while Tehran threatened to establish a new restricted zone outside the Strait of Hormuz. Higher oil prices have been a key driver of the global bond selloff, leaving UK gilts particularly vulnerable. On the economic data front, UK firms also increased full-time hiring in August for the first time in four years, according to a closely watched REC survey. The data will be of particular interest to Bank of England policymakers as they assess the strength of the labor market. Meanwhile, UK house prices fell year-on-year for the first time since November 2023, Lloyds data showed.

The British pound weakened toward $1.35, hovering near a two-week low, as stronger-than-expected US employment data boosted the dollar and reinforced expectations for tighter Federal Reserve policy. US nonfarm payrolls rose by 162,000 in August, well above expectations for a 56,000 gain, prompting markets to price in a near 60% probability of a Fed rate hike this month. In the UK, markets are now fully pricing in a BoE rate hike by year-end, with another increase expected by March 2027. Bank of England Chief Economist Huw Pill said on Thursday that raising interest rates now could reduce the risk of the central bank having to tighten policy more aggressively later to contain inflation. For the September meeting, however, policymakers are widely expected to leave rates unchanged as they adopt a wait-and-see approach, assessing the trajectory of the conflict in the Middle East and its impact on energy prices and inflation.