Pound caught in three-day slide as dollar rallies broadly

The pound fell for a third day on ​Wednesday, driven lower by the strength of ​the dollar, which got a lift ‌from investors ​pricing in a higher chance of a string of US rate rises over the coming months, even as the oil price trades below $100 ‌a barrel. Sterling was around $1.328, down 0.45% on the day, even with oil futures dropping below $99 again, as investors clung on to evidence that supply from the Middle East was slowly improving, while optimism grew over a ‌possible diplomatic breakthrough between the US and Iran.

Growth in British business activity cooled this month ‌and inflation pressure built, a survey showed on Wednesday, an awkward backdrop for finance minister John Healey ahead of his first budget in October. The S&P Global UK Services Purchasing Managers' Index (PMI) fell in September to 51.7 from 52.5 in August, a three-month low, ⁠according ​to "flash" or preliminary data. ⁠A Reuters poll of economists had pointed to a reading of 52.0.

"Growth in Britain’s economy has been remarkably resilient so far ⁠this year, though we think that a slowdown is almost inevitable during the remainder of the year - energy ​costs have risen, borrowing costs are up, the jobs market continues to weaken and political uncertainty looks ⁠set to rear its ugly head again as we approach budget day next month," Matthew Ryan, head of market strategy at ⁠Ebury, ​said. "We expect this to keep sterling under pressure in the near-term, though we do contend that sterling appears a bit oversold at current levels."

Money markets show traders expect UK rates to ⁠be around a full percentage point above the current rate of 3.75% this time next year, which would ⁠imply four quarter-point hikes ⁠between now and then. They assign roughly a 65% chance of a rate rise at the BoE's November meeting, which falls right after the Autumn Budget, with a ‌December hike ‌seen as a done deal.