Sterling Soars on Falling Fed Expectations

The British Pound Sterling has reached its strongest level since early May, hitting a peak of just short of 1.3600 against the US Dollar on Tuesday. This represents close to 300 pips of recovery from its base near 1.3300 built in the first week of August.

Despite this strong advance, it's not entirely due to domestic factors. The Pound's rate has been driven by a collapse in US Federal Reserve tightening expectations, which has seen futures price a September Fed increase at around 31%, down from above 82% in the days after the July 29 decision.

Meanwhile, Sterling's own rate story has barely shifted over the same three weeks. Swap pricing puts a hold at the September 17 MPC decision near 72%, with roughly 7 basis points of tightening expected in that meeting and about 30 basis points by year-end.