Pound Falls to Three-Month Low on Rate Hike Expectations

The British pound has been under pressure this week, falling to its lowest level in nearly three months against both the euro and the US dollar. Sterling was steady at around $1.322 on Friday, after plummeting to $1.32 on Thursday.

This marks a significant decline for the pound, with a 1.2% drop against the dollar this week, its biggest one-week fall since May. The previous week saw a 1% decline, and traders are expecting further rate hikes from the US Federal Reserve.

The Fed's decision to raise borrowing costs last Wednesday has sparked expectations of more interest rate increases, pushing up yields on US bonds and making them more attractive to investors. This has led to a surge in demand for the dollar, which is now set for its second sharp weekly increase this month.

Meanwhile, the Bank of England held rates steady last week, but flagged the possibility of future hikes if the conflict in the Middle East continues to disrupt energy flows. Francesco Pesole, currency strategist at ING, believes that the pound will struggle in the coming months as it is unlikely that the BoE will match market expectations for further tightening.