Sterling Falls as Strong US Data Boosts Dollar

The British pound weakened sharply to around $1.325, reaching its lowest level since late June, as the US dollar strengthened following stronger-than-expected PMI data and a series of hawkish comments from Federal Reserve policymakers. The developments reinforced expectations of further monetary tightening in the US, adding pressure to sterling. Higher oil prices, amid continued uncertainty surrounding US-Iran talks, also weighed on risk-sensitive assets. In the UK, the latest PMI survey showed that business activity continued to expand in September, although the pace of growth eased slightly and fell short of market expectations. Despite the softer reading, markets continue to price in a meaningful probability of a 25-basis-point Bank of England rate hike in November.

The British pound weakened to around $1.33, its lowest level since late July, as investors weighed Middle East developments and weaker-than-expected UK PMI data, while the US dollar remained supported by expectations of further Federal Reserve tightening. Brent crude stayed below $100 a barrel amid Saudi Arabia’s plans to restart a key pipeline and signs of progress in US-Iran talks. Despite softer oil prices, expectations for further Bank of England tightening remained firm, with markets still pricing a solid chance of a 25-basis-point rate hike in November. Meanwhile, preliminary September PMI data showed UK private-sector activity continued to expand, although growth slowed and fell slightly short of expectations. Services firms cited subdued domestic demand and geopolitical uncertainty as headwinds, while technology services provided support. In manufacturing, AI investment and higher defense spending continued to boost activity.

Sterling weakened to $1.336, near its lowest level since late July, as investors assessed the latest developments in the Middle East alongside weaker-than-expected UK public finances. The US dollar remained supported by expectations of further interest-rate hikes from the Federal Reserve. Brent crude resumed its recent decline after reports that Iran had proposed reopening the Strait of Hormuz within seven days if Washington agrees to demands including lifting its military blockade of Iranian ports. Meanwhile, UK government data showed the budget deficit widened to £18.3 billion in August, above the £15.5 billion forecast, partly reflecting higher inflation-linked spending on pensions and benefits. Attention is now turning to next month’s Autumn Budget, with the government reportedly considering changes to its fiscal rules that would allow borrowing for infrastructure projects to be excluded.