Pound Slips as US Sanctions Loom and Rate Hike Expectations Waver

The pound's recent strength has taken a breather, slipping to $1.3633 as investors weigh the possibility of new US sanctions tied to Iran and differing views on the Bank of England's interest rate outlook.

LSEG data shows that traders still price in at least a quarter-point Bank of England increase by December, while some economists see no hike at all. UBS Global Wealth Management's Maelle Quillevere believes 'there's no need to tighten' this year and even sees cuts resuming in 2027.

This gap between market expectations and economist views matters because currencies tend to favor the one with higher expected rates. If UK rate expectations drift down toward the 'no-hike' camp, the pound loses some of its extra appeal against the dollar.