Pound Tumbles Amid Dollar Strength and Rate Hike Expectations

The British pound continued its three-day decline on Wednesday, reaching a low of $1.328 as investors priced in higher chances of US rate hikes over the coming months.

The strength of the dollar drove down sterling, despite oil futures trading below $99 per barrel, which some saw as evidence that supply from the Middle East is slowly improving.

A survey released on Wednesday showed growth in British business activity cooled to a three-month low this month, with inflation pressure building ahead of finance minister John Healey's first budget in October.

Money markets suggest traders expect UK rates to be around 1 percentage point above the current rate of 3.75% within a year, implying four quarter-point hikes between now and then.