Pound Falls to Weakest Level Against Dollar Since July as Investors Reprice

The British pound has fallen to its weakest level against the US dollar in nearly three months, dropping to $1.3222 and losing around 1.25% of its value over the past week.

This decline comes as investors continue to reposition after the Federal Reserve's hawkish shift last week, with the US dollar index rising about 0.90% since Monday.

According to HSBC senior forex strategist Daragh Maher, the market is already pricing in hikes from a Bank of England that still sounds somewhat unconvinced, and weak labour demand combined with elevated energy prices creates an additional challenge for the UK currency.

The Bank of England faces slowing momentum in the economy alongside persistent price pressures, and while markets are currently pricing around 100 basis points of BoE hikes over the next 12 months, BofA expects only two rate hikes before the BoE begins cutting rates in 2028.