Sterling Under Pressure Ahead of BoE Rate Decision

The British pound traded around $1.34, its weakest level since late July, ahead of the Bank of England’s highly anticipated policy announcement, while investors were also digesting the Federal Reserve’s rate hike yesterday. No change in interest rates is expected from the BoE today, but markets will be watching closely for any signals about the future path of policy, with a November hike still priced in, albeit with less conviction as oil prices retreat for a second consecutive session. The outlook for the Middle East remains highly uncertain, however, keeping oil prices elevated and adding to the challenge facing central banks as they try to contain inflation without putting excessive pressure on economic activity. In the US, the Federal Reserve raised interest rates by 25 basis points, the first increase since July 2023, and signaled another hike later this year, as policymakers continue to grapple with persistent inflation pressures.

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.

GBPUSD decreased to 1.35, the lowest since August 2026. Over the past 4 weeks, British Pound US Dollar lost 0.5%, and in the last 12 months, it decreased 0.92%.