Sterling Steadies Ahead of BoE and Fed Decisions

2026-09-16 07:24 By Joana Ferreira 1 min. read

The British pound steadied just below $1.35, hovering around its weakest level since early August, as investors digested an in-line UK inflation report ahead of interest rate decisions from both the Bank of England and the US Federal Reserve.

UK annual inflation accelerated to 3.1% in August from 2.9% in July, in line with expectations and largely reflecting higher fuel costs.

Core CPI, which strips out more volatile components, was unchanged at 2.6%, while services inflation, a key focus for the Bank of England, came in at 3.4%, slightly below expectations of 3.5%.

No rate change is expected from the BoE on Thursday, while a November hike remains priced in with less conviction.

Markets have also pared back expectations for hikes through the end of next year, with four now priced versus five previously.

Elsewhere, the US dollar remained supported ahead of the Fed decision, with policymakers widely expected to raise rates for the first time in around three years.



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Sterling Steadies Ahead of BoE and Fed Decisions
The British pound steadied just below $1.35, hovering around its weakest level since early August, as investors digested an in-line UK inflation report ahead of interest rate decisions from both the Bank of England and the US Federal Reserve. UK annual inflation accelerated to 3.1% in August from 2.9% in July, in line with expectations and largely reflecting higher fuel costs. Core CPI, which strips out more volatile components, was unchanged at 2.6%, while services inflation, a key focus for the Bank of England, came in at 3.4%, slightly below expectations of 3.5%. No rate change is expected from the BoE on Thursday, while a November hike remains priced in with less conviction. Markets have also pared back expectations for hikes through the end of next year, with four now priced versus five previously. Elsewhere, the US dollar remained supported ahead of the Fed decision, with policymakers widely expected to raise rates for the first time in around three years.
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The British pound weakened below $1.35, touching its lowest level since early August, as the dollar remained supported ahead of a widely expected Federal Reserve rate hike on Wednesday, while the Bank of England is expected to hold rates on Thursday. BoE Governor Andrew Bailey has pushed back against expectations of another imminent rate hike, but surging energy prices have clouded the inflation outlook, with oil climbing well above $100 a barrel amid renewed Middle East hostilities. Earlier this month, data showed the UK economy expanded at its fastest pace in 18 months in July, supported by AI-related activity and continued momentum from a strong first half. Goldman Sachs expects the BoE to keep Bank Rate unchanged at 3.75% on Thursday, before delivering a 25-bp hike in November as inflation persists and growth holds up. Markets, meanwhile, are pricing in four BoE rate hikes by mid-2027.
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