Pound Plummets Amid Rising Oil Prices

The British pound plummeted to a one-month low on September 14, reaching $1.3474 against the US dollar. The sharp decline was triggered by events in Saudi Arabia, where Houthi strikes forced the closure of the country's main pipeline bypassing the Strait of Hormuz.

Brent crude prices surged 3% to $108 per barrel as a result, causing demand for dollars to rise mechanically due to oil being priced in US currency. The dollar also benefited from its traditional role as a safe-haven asset during times of geopolitical uncertainty.

As Britain is a net energy importer, higher oil prices exacerbate its trade deficit, contributing to the pound's downward pressure. The UK's central bank path diverges from that of the Federal Reserve, with markets pricing in a higher likelihood of an interest rate hike by the Fed around September 16.

The Bank of England is expected to hold its current rates, widening the yield differential between dollar and pound assets. Analysts at Commerzbank suggest that market expectations may be overestimating the pace of future UK rate hikes, potentially leading to further pound depreciation.