Sterling hits near 3-month low against the dollar

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%.

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. “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. 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..

The euro rose 0.05% to 85.98 pence, with the market pricing in about 100 bps of tightening by the ‌European Central Bank by ‌the end of 2027. (reporting by Stefano Rebaudo; ​editing by Susan Fenton)