The British pound sterling edged lower against the US dollar on Monday, reflecting a mix of expectations for further Federal Reserve tightening and a sharp decline in oil prices projected for the fourth quarter. As of early trading in London, the GBP/USD exchange rate stood at $1.3385, down 0.07% from the previous day. Meanwhile, the euro also experienced a slight decline, falling 0.06% to $1.1479 against the dollar, though analysts noted that broader market drivers—particularly central bank policies and energy prices—remained the primary influences on currency movements.
Analysts at ING Bank highlighted that the Federal Reserve’s potential final rate hike of the year remained a focal point, with December now seen as the more likely timing than October due to the proximity of US midterm elections. Markets currently price in 13 basis points of tightening for December, though ING’s FX strategist Francesco Pesole emphasized that the Fed’s recent hawkish tone—more pronounced than that of the Bank of Japan—suggested the central bank could act decisively if market expectations for a hike reached a high probability threshold. Pesole noted that even with uncertainty around conviction, the scope for a hawkish Fed post-September remained a key driver of US dollar strength.
The euro’s performance was also influenced by expectations for European Central Bank policy. ING maintained a year-end EUR/USD target of 1.160, while markets anticipated further tightening of 33–37 basis points by year-end and 80–90 basis points by mid-2027. ECB officials continued to signal a cautious but hawkish stance, though political developments in Germany added a layer of volatility. Two regional elections—one in Mecklenburg-Vorpommern where the far-right Alternative für Deutschland (AfD) won a majority, and another in Berlin where the Left Party secured a victory—highlighted shifting political dynamics that could indirectly impact monetary policy expectations. However, analysts stressed that these results did not outweigh the dominant influences of rate differentials and oil prices.
Energy markets remained a critical driver, with Brent crude prices trending back toward $110 per barrel. ING’s baseline scenario anticipated a sharp decline in oil prices in the fourth quarter, which could further support the dollar if it aligned with expectations of an October Fed hike. A move toward June lows in the GBP/USD exchange rate—around 1.1320–1.1330—was deemed plausible if oil prices weakened further and market pricing for a Fed rate hike intensified. The absence of major economic data releases also contributed to the market’s focus on these structural factors.
Geopolitical developments also weighed on currency markets. Investors closely monitored US President Donald Trump’s meetings with Gulf state representatives at the United Nations General Assembly, as well as his upcoming meeting with Chinese President Xi Jinping in Washington. Such interactions could influence trade dynamics and broader economic sentiment, potentially providing additional support to the dollar if positive trade headlines emerged. Meanwhile, the Bank of Japan’s rate decision remained a counterpoint, with the yen initially weakening after reports of a rate check but ultimately stabilizing as the dollar’s broader momentum persisted.
Overall, the pound’s decline reflected a confluence of central bank expectations, energy market trends, and geopolitical uncertainty, with the Federal Reserve’s potential hawkish shift remaining the most immediate catalyst for dollar strength.
