FX.co ★ Sterling Falls to Late-June Lows

Sterling slipped below $1.32, returning to levels last seen in late June, after stronger-than-expected US inflation data reduced the likelihood that the Federal Reserve will keep rates unchanged in October. US headline inflation accelerated to 3.7% year-on-year in September, above the 3.6% consensus forecast, while core inflation also came in higher than expected.

At the same time, investors weighed recent remarks from Bank of England officials. Chief Economist Huw Pill voiced doubts about market pricing for four rate hikes over the coming year, arguing that more compelling evidence would be needed to justify a steeper tightening path, even as policymakers confront the energy shock stemming from the war in Iran. By contrast, Governor Andrew Bailey cautioned that the longer the shock endures, the harder it will be to avoid raising rates.

Markets now assign an almost 100% probability to the BoE delivering its first rate increase in more than three years in November. However, expectations for four 25-basis-point hikes by June 2027 have eased slightly.