Sterling Plunges as Oil Prices Surge and Dollar Rally Continues
The value of sterling continues to decline due to increased investor risk aversion and fears over global energy supplies. The pound has fallen to its lowest level in over a month, reaching $1.3474 on Monday. This drop is largely attributed to the surge in oil prices, with Brent crude rising 3% to $108 a barrel after attacks by Houthi rebels and the closure of Saudi Arabia's main pipeline.
The strong dollar and rising bond yields are also contributing to sterling's weakness. Investors are seeking safe-haven assets, driving up demand for the US currency. The European Central Bank raised borrowing costs last week, further supporting the dollar's rally.
However, UK growth data released on Friday showed a 0.4% increase in GDP in July, beating expectations of flat growth. This has led to increased bets on future Bank of England rate hikes, which could potentially support sterling. But analyst Michael Pfister warns that heavy market positioning for tighter policy creates downside risk for the currency if the BoE delivers less than investors expect.
Despite these mixed signals, the pound remains under pressure as investors weigh the risks of a potential US Federal Reserve rate hike on Wednesday this week. The Bank of England is expected to leave rates unchanged on Thursday, but traders anticipate an increase later this year and more in 2027.