British Pound Hits 13-week Low

Sterling fell below $1.335, pulling back from near two-month highs, after a strong US jobs report lifted the dollar. The greenback was already benefiting from safe-haven demand amid a global technology selloff, as sentiment toward AI stocks weakened on concerns that a Democratic sweep in the congressional elections could lead to tighter regulation and slow the industry's expansion. At the same time, markets continued to digest the implications of the Bank of England's policy decision on Thursday, where the central bank raised interest rates for the first time in more than three years. Governor Andrew Bailey indicated that further increases may be required unless the war in Iran comes to an end. In response, investors have ramped up expectations for additional monetary tightening, with three more rate hikes now fully priced in by November 2027. The central bank also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario envisages a sharper rise to 6.2% in Q3.

Sterling fell below $1.34 after briefly breaking above $1.35 earlier this week, its highest level since mid-September, as a global tech selloff triggered renewed demand for the safe-haven US dollar. Sentiment toward AI stocks deteriorated amid concerns that a Democratic sweep in the US midterm elections could usher in tighter regulation and curb the industry’s rapid expansion. Meanwhile, markets continued to digest the implications of the Bank of England’s policy decision on Thursday. The BoE raised interest rates for the first time in more than three years, with Governor Andrew Bailey indicating that further increases may be required unless the war in Iran comes to an end. In response, investors have ramped up expectations for further monetary tightening, with three additional rate hikes now fully priced in by November 2027. The central bank also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario envisages a sharper rise to 6.2% in Q3.

Sterling appreciated to $1.347, its strongest level since mid-September, after the Bank of England raised its key interest rate by 25 basis points to 4%, marking its first increase in more than three years. The vote was split 8-1, with Catherine Mann dissenting in favour of a larger 50 bps hike. Governor Andrew Bailey signaled that further rate increases may be necessary unless the Iran war is resolved, which would help ease the inflationary pressures that prompted the latest hike. Markets have since increased their bets on further monetary tightening, with three additional rate increases now fully priced in by November 2027. The BoE also warned that inflation could peak at 4.9% in the second quarter of 2027, while its adverse scenario projects a sharper rise to 6.2% in the third quarter of next year. Meanwhile, the pound remained supported by broad US dollar weakness, with the greenback falling to a one-month low following a sweeping Democratic victory in the US midterm elections.