Sterling today: Pound slips as oil-fuelled dollar demand builds

Investing.com — Sterling traded lower on Tuesday while the euro also fell, as stalled US-Iran talks pushed Brent crude towards $107 a barrel and kept the dollar supported.

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GBP/USD was down 0.19% at $1.3232, while EUR/USD fell 0.24% to $1.1344, as of 04:48 ET (08:48 GMT).

Optimism about progress in U.S.-Iran negotiations has faded, with Iranian officials reportedly saying a deal is unlikely before the Nov. 3 US midterms. The Trump administration yesterday refused an Iranian proposal to reopen the Strait of Hormuz. Brent touched $109 on Monday.

“We need to see some stability in bonds for the dollar to correct lower. That relies heavily on oil, and the latest news isn’t encouraging. Upside risks are rising again for the greenback,” said Francesco Pesole, FX strategist at ING.

Pesole said equities were absorbing the shock well, but warned that high valuations with rates rising so rapidly create a tail risk “that is getting fatter, and one that would be associated with big dollar gains.”

Markets are pricing 17 basis points of Fed tightening by October, a hawkish lean. ING expects both the Fed and the European Central Bank to wait until December. US September consumer confidence is expected to stabilise around 89 today, and JOLTS job openings will add nuance to the August jobs picture. ING expects Friday’s payrolls to be revised lower, having judged last month’s figure “too strong.”

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The pound’s decline appears driven by dollar strength rather than UK fundamentals. Domestic data was marginally soft.

The British Retail Consortium’s shop price index showed inflation easing to 1.4% in September from 1.5% in August, slightly below the 1.5% forecast, though above the three-month average of 1.3%.

Food inflation slowed to 2.5% from 2.8% on promotions, while non-food inflation eased to 0.8% from 0.9% on back-to-school discounting.

The BRC said retailers are absorbing higher business rates, employment costs, energy bills and packaging taxes, but warned there is a limit to how much extra cost they can shoulder. Broader UK CPI inflation rose to 3.1% in August and is expected to top 4% in early 2027 as the Iran war lifts energy prices.