FX.co ★ Sterling Slides as Oil Surge and Hawkish Fed Lift Dollar

The British pound slipped toward $1.35, its weakest level since August 19, as renewed risk aversion driven by higher oil prices pressured the currency, while hawkish signals from the Federal Reserve continued to bolster the US dollar. Brent crude advanced as renewed hostilities in the Middle East intensified concerns about further disruptions to regional energy supplies.

At the same time, markets are currently pricing in about 32 basis points of additional Bank of England tightening by year-end, with a November rate increase seen as nearly 70% likely and a second hike by February assigned a probability of around 80%. These expectations were reinforced by the latest British Retail Consortium data, which showed UK shop-price inflation accelerating to its fastest pace in two years.

Meanwhile, Fed Chair Kevin Warsh noted that inflation has not slowed meaningfully and that the central bank still has “work to do,” leading markets to assign roughly a 66% probability to a rate hike in September.