Pound Plunges Amid Oil Surge and Hawkish Fed
The British pound has weakened to its lowest level since August 19 as investors' risk aversion increases due to rising oil prices and a hawkish stance from the Federal Reserve.
Brent crude has surged in response to renewed hostilities in the Middle East, heightening concerns over energy disruptions. This has weighed heavily on the pound, causing it to fall towards $1.35.
The Fed's signals of potential rate hikes have also contributed to the dollar's strength, with markets pricing around 32 basis points of Bank of England tightening by year-end. A November hike is seen as almost 70% likely, and a second hike by February is priced at around 80%.
UK shop-price inflation has accelerated to its highest level in two years, according to the British Retail Consortium report. This supports rate expectations, with Fed Chair Kevin Warsh emphasizing that inflation has not slowed meaningfully and the Fed still has 'work to do.'