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Monday, Oct 26, 2026

Pound Hits Five-Month Low as Dollar Rallies: Sterling Sinks Amid Lower Fed Easing Expectations

The British pound reached a five-month low against the dollar on Friday despite the UK economy showing signs of exiting recession.
The pound dropped to $1.249, its lowest since mid-November, due to lower expectations for Federal Reserve easing and higher U.S. bond yields.

The euro also fell against the pound, with the ECB signaling a possible summer rate cut.

The UK's economic output grew by 0.1% in February, but the pound still faced a weekly loss of 1.1%.

The Bank of England (BoE) is expected to make an interest rate cut soon, according to Rabobank senior FX strategist Jane Foley.

The inflation and labor data, which could influence the BoE's decision, will be released next week.

Money markets anticipate approximately 52 basis points of rate cuts from the BoE this year, with a 39% chance of the first cut happening in June.

The BoE is reportedly preparing for a summer move, either in June or August.

The Bank of England (BoE) inflation expectations have decreased from approximately 68 basis points (bps) predicted for 2024 at the beginning of the week.

This change was prompted by a Financial Times article written by BoE official Megan Greene, which expressed concerns about the longevity of UK inflation.

Additionally, higher-than-anticipated U.S. inflation has led markets to revise their expectations for the first Federal Reserve (Fed) interest rate cut.

The first rate cut is now projected to occur in September, as opposed to June.
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