Pound Slides as Traders Bet on Higher US Rates for Longer
The pound has been sliding to a three-month low as investors bet on higher US interest rates for longer. The US dollar is heading for its second strong week, with the Federal Reserve possibly keeping borrowing costs elevated due to rising oil and gas prices.
The UK's Bank of England has recently been more cautious, leading some traders to think they've been too aggressive in pricing future UK rate hikes. According to ING, a Dutch bank, money markets are still pricing about 35 basis points of BoE tightening this year and more than 100 basis points by end-2027.
This shift in expectations is causing sterling to lose value against the dollar, as investors expect a smaller gap between UK and US rates. If UK rate bets get repriced lower, it could hit sterling even without new bad news for the UK economy.