Dollar Retreats as Oil Prices Slip Below $103, Sterling Recovers on BoE Hawkish Tone

The dollar retreated from its post-FOMC highs as Brent oil prices fell by over 3% to below $103. WTI crude also declined, slipping around 2.8% to $99.5, dropping back under the psychologically important $100 level.

This move removed one of the accelerants that had been supporting the dollar's rally all week - higher energy costs feeding inflation expectations and hawkish Fed repricing. However, this doesn't change the broader policy outlook for the Fed, with 16 out of 18 officials still favoring at least one more hike in 2026.

The decline in oil prices also had a positive impact on sterling, which initially weakened after the Bank of England held its Bank Rate at 3.75% by a 6-3 vote. However, the BoE's hawkish tone helped contain sterling's losses, with four members within the hold majority conditionally open to tightening.