Pound Struggles at 3-Month Low as Dollar Rallies on Rate Hike Bets

The British pound held steady on Friday at around its lowest value in nearly three months against both the euro and dollar, as the US currency continued to rally due to rising energy prices and bets of further rate hikes from the Federal Reserve.

The dollar has seen a significant increase this week, with traders raising their expectations for more rate increases after the central bank raised borrowing costs last Wednesday. In contrast, the Bank of England held rates steady last week, but flagged the possibility of future increases if the US-Israeli conflict in the Middle East continues.

Expectations of higher interest rates typically push up yields on a country's bonds, making them more attractive and increasing demand for the currency. Francesco Pesole, currency strategist at ING, noted that the pound is likely to struggle in the coming months as it appears unlikely the Bank of England will match market expectations for further tightening.

The pound was little changed at $1.322 on Friday, after falling to $1.32 on Thursday, its lowest since June 29. Britain's currency was on track to fall 1.2% against the dollar in its biggest one-week drop since May, following a 1% decline the previous week.