FX.co ★ Sterling Falls Toward Three-Month Low

The British pound extended its decline toward $1.32, its weakest level in three months, as markets weighed fresh remarks from Bank of England officials and a firmer US dollar, the latter buoyed by rising expectations of additional Federal Reserve rate hikes this year. Higher oil prices also darkened the UK’s economic outlook.

BoE Deputy Governor Clare Lombardelli said on Thursday that interest rates may need to increase if energy prices remain elevated, unless there is clear evidence that the economy is slowing. Her comments followed last week’s policy meeting, where she said the case for a rate rise was strengthening and joined a 6–3 majority in voting to hold the Bank Rate at 3.75%.

By contrast, MPC member Swati Dhingra, one of the committee’s more dovish voices, signaled that inflation expectations were not yet a major concern. Even so, markets continue to assign a significant probability to a 25-basis-point BoE rate hike in November.

In the United States, investors have increased wagers on further Fed tightening after hawkish signals from policymakers and stronger-than-forecast PMI data, reinforcing support for the dollar.