Pound Slumps as Fed Hawks Push Dollar to New Heights

The British pound has fallen against the US dollar to its weakest level since August 19, reaching $1.35. This decline is largely due to hawkish remarks from the Federal Reserve, which have supported the strength of the US dollar.

According to the London Stock Exchange Group (LSEG), markets are pricing around 24 basis points of Bank of England (BoE) tightening by December and 36 basis points by February 2027. This indicates that investors expect the BoE to raise interest rates in the coming months, but at a slower pace than previously anticipated.

The UK's inflation rate rose to 2.9% in July, driven by higher household energy bills. However, the labor market has remained subdued, which could make the BoE more cautious about tightening policy in the near term.