Pound hits lowest level of the year against the dollar, as falling oil price eases inflation worries – business live | Business

The pound has hit its lowest level against the US dollar since last November, as the falling oil price eases fears of interest rate rises.

Sterling has weakened by half a cent against the dollar today to as low as $1.3145, its weakest level since late November 2025.

In truth, it’s a story about dollar strength – the greenback has hit a 13-month high against a basket of major currencies today, and is a one-year high against the euro too (see earlier post).

With the oil price falling back towards pre-Iran war levels, there’s less pressure on central bankers in the UK and the eurozone to raise interest rates.

Today, the City of London money markets are fully pricing in a Bank of England interest rate rise by February 2027. Back in March, three rate rises this year were fully priced in.

The US Federal Reserve, though, is expected to raise rates at least once this year, after around half its policymakers predicted a rate rise before the end of 2026.

The pound is also vulnerable to political uncertainty, following Keir Starmer’s decision on Monday to step down as prime minister.

Joel Kruger, markets strategist at LMAX Group, explains:

“The Pound remains under pressure, with GBPUSD weighed down by a combination of growing UK political uncertainty and a stronger US Dollar backdrop.

Keir Starmer’s resignation as Prime Minister has injected fresh uncertainty into the UK outlook, with markets now focused on the Labour leadership transition and the potential implications for fiscal policy under a new government.

Concerns that a future administration could loosen fiscal rules have added pressure to UK assets, particularly after recent volatility in gilt markets. At the same time, weaker UK economic data has reinforced concerns about slowing growth, with June’s flash Composite PMI falling deeper into contraction territory at a 14-month low, highlighting softening momentum across the private sector.

Despite these domestic headwinds, sterling has generally held up better than many peers in recent sessions, suggesting some of the political risk may already have been partially priced in.

Nevertheless, the broader driver remains the widening policy divergence between the Bank of England and a more hawkish Federal Reserve, with markets significantly increasing expectations for a Fed rate hike later this year following last week’s FOMC meeting. That shift in rate expectations, alongside resilient US data and lingering demand for the Dollar, continues to act as the main headwind for the pound.”