Sterling Falls to Three-Week Low Amid Sliding Oil and Rising US Rate Hike Bets
Market Movements and Economic Factors Impacting Sterling
Sterling's Performance Against the Dollar
July 28 (Reuters) - Sterling fell to a more than three-week low against a stronger dollar on Tuesday as lower oil prices eased inflation concerns, while expectations of a U.S. interest rate hike this week continued to support the greenback.
The pound traded near its weakest level since early July at $1.327 on Tuesday, down 0.1% on the day.
Oil Prices and Geopolitical Influences
Brent Crude Movements
Brent crude retreated 2.6% to $86.08 a barrel, extending its pullback from last week's spike above $100, amid growing hopes of a resolution to the U.S.-Israeli war on Iran after U.S. President Donald Trump said Washington was having "good talks" with Tehran.
Impact on UK Gilt Yields
Rate-sensitive 2-year gilt yields retreated 3 bps to 4.352%.
US Federal Reserve Policy and Rate Hike Expectations
Upcoming Fed Meeting
The Federal Reserve wraps up its two-day policy meeting on Wednesday, with traders pricing in a nearly 40% chance of a 25-basis-point rate hike, up from about 20% a week earlier, according to LSEG data. U.S. rate futures show 95% probability of a quarter-point increase by September.
Market Analyst Commentary
"With a September hike now fully priced in by futures, we think that the bar for a hawkish surprise that meaningfully boosts the dollar is high," said Matthew Ryan, head of market strategy at global financial services firm Ebury.
Bank of England Outlook and Domestic Factors
Labour Market Data and Policy Expectations
Softer labour-market data has cemented expectations the Bank of England stands pat on Thursday, but unease over the spending plans under the new Prime Minister Andy Burnham have weighed on the pound this month.
Government Spending and Taxation Plans
Stamp Duty and Budget Announcements
Burnham on Monday ruled out any changes to stamp duty, a tax on home sales, at the next budget due later in the year.
Broader Fiscal Policy
Previously Burnham has said he may ask people to pay "a little more" in tax as the country faces major spending pressures from an ageing population and a need to rebuild its armed forces as well as broader investment goals.
Sterling's Performance Against the Euro
The pound was largely unchanged against the euro at 0.855 after retreating 1.1% from last week's one-year high.
(Reporting by Medha Singh in Bengaluru; Editing by Anil D'Silva)
