Sterling at One-Month Low Amid Rising Oil Prices and Imminent Fed Hike
Market Reactions to Global Economic and Geopolitical Events
Sterling and Dollar Movements
Sept 15 (Reuters) - The pound was stuck at its lowest level in more than a month against a broadly stronger dollar on Tuesday, pinned down by elevated crude oil prices ahead of this week's interest-rate decisions from the Bank of England and U.S. Federal Reserve.
Sterling eased 0.2% to $1.347, hovering near its lowest since August 7. The dollar firmed against most currencies on Tuesday as markets priced in a near-certain interest rate hike by the U.S. Federal Reserve later this week.
Oil Price Surge and Geopolitical Tensions
Oil prices rose more than 2% to $108.2 per barrel as concerns over oil supplies intensified after Iran-backed Houthi forces in Yemen launched fresh attacks on Saudi Arabia, while Gulf Arab states postponed planned discussions with Iran.
Impact on Energy Infrastructure
That left the kingdom's East-West Pipeline offline, raising fears that damage to energy infrastructure and transport routes could take longer to repair.
Implications for the UK Economy
Energy Prices and Inflation Risks
Britain is prone to risks from higher energy prices given its net oil-importer status. The spike in oil prices has led to global concerns of energy-related inflation, prompting investors to dial up expectations of interest rate hikes.
Central Bank Responses
Federal Reserve and ECB Actions
The rising bets on a Fed rate hike have supported the U.S. dollar this week. The European Central Bank also raised borrowing costs last week.
Bank of England Outlook
The Bank of England is expected to keep rates on hold on Thursday but traders are fully pricing in one 25 basis point rate hike and a high chance of another by year-end, according to data compiled by LSEG.
UK Labour Market Conditions
Britain's jobs market remained weak with pay growth near a six-year low, the fewest vacancies since 2021 and hiring down.
"The softness of the labour market had been the key variable holding back expectations for rate hikes in response to the ongoing energy cost shock. But markets have now moved to price aggressive hiking," said Felix Feather, an economist at Aberdeen.
Potential Policy Shifts
The Telegraph reported that the BoE is poised to announce this week that it will stop selling long-dated government bonds which have been hit by a global selloff in debt markets, potentially freeing up some cash for finance minister John Healey.
(Reporting by Shashwat Chauhan in Bengaluru; Editing by Kirsten Donovan)
