Sterling Drops to Near 3-Month Low vs Dollar Amid Rate Hike Concerns

Sterling Slips to Lowest Level in Nearly Three Months Against Dollar

Market Reaction and Currency Performance

By Stefano Rebaudo

Sterling’s Recent Decline

Sept 24 (Reuters) – Sterling hit the lowest level in almost three months against the dollar and edged down versus the euro on Thursday, as investors singled out the pound as a key casualty of the dollar repricing sparked by Federal Reserve’s hawkish shift last week.

The British currency is on track for its fourth straight daily fall against the greenback, which is hovering around two month-highs.

Sterling was down 0.10% at $1.3222, its lowest level since July 1. It dropped about 1.25% since Monday while the U.S. dollar index rose around 0.90%.

Rate Outlook and Central Bank Policy

The rate outlook remained in focus after Fed Chair Kevin Warsh last week signalled further monetary tightening, defending the US central bank’s independence despite repeated calls from President Donald Trump for lower borrowing costs.

Analyst Insights

“The market is already priced for hikes from a Bank of England that still sounds somewhat unconvinced,” Daragh Maher, senior forex strategist at HSBC, said after flagging that HSBC decided to play US dollar upside against the pound.

“Weak labour demand, ahead of another real income squeeze should energy prices remain elevated, is a further challenge,” he added.

Economic Data and Market Expectations

Growth in British business activity cooled this month and inflation pressure built, a survey showed on Wednesday.

BofA said markets may be pricing in too much tightening, as it expects only two rate hikes before the BoE begins cutting rates in 2028.

Money markets are pricing in around 100 basis points of BoE rate hikes over the next 12 months, implying four quarter-point increases from the current 3.75% rate. Traders see a roughly 75% chance of a move in November, immediately after the Autumn Budget, with a December hike viewed as a near-certainty..