Pound softens as traders await Bank of England rate signals

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The Pound slipped against the Dollar on Tuesday as investors awaited comments from several Bank of England policymakers, including Governor Andrew Bailey, for clues on the outlook for inflation and interest rates.

Sterling was trading at $1.3529 at the time of writing, down 0.12% on the day.

Bailey, Deputy Governor Dave Ramsden and Monetary Policy Committee members Megan Greene and Alan Taylor are due to appear before lawmakers on the Treasury Select Committee at 1315 GMT.

Traders largely expect the central bank to leave interest rates unchanged at 3.75% next week. However, they will be watching policymakers’ comments closely, particularly after oil prices recently surged to nearly $100 a barrel and a rate-setter unexpectedly voted for a rate hike in July.

“We expect a 6-3 vote (in favour of holding ​interest rates) as our baseline, with Greene, Mann and Pill dissenting. However, we see the risks as skewed towards more dissenters, with a small possibility they are joined by either Lombardelli or Ramsden,” according to Barclays ​economists.

The Bank of England kept interest rates unchanged in July as it waited for a clearer picture of the impact of the US-Iran war on inflation. Yet the lack of progress towards a Middle East peace deal led Catherine Mann to join the more hawkish camp.

Money market futures now fully price in one 25-basis-point rate hike by the end of 2026, despite signs that the labour market is losing momentum, Reuters reports.

Furthermore, UK retail sales growth slowed to a four-month low in August as the boost from record-high temperatures earlier in the summer faded, according to figures from the British Retail Consortium on Tuesday.

Sterling was little changed at 85.83 pence per Euro but weakened further against the Japanese Yen, falling 0.2% to a near seven-month low of 208.46 Yen.

The Yen strengthened on expectations that the Bank of Japan could deliver a hawkish message next week.

Geopolitical tensions continued to weigh on global markets, with oil prices climbing to multi-week highs after Iran-backed Houthi forces attacked Saudi energy facilities and Tehran warned the United States of “economic warfare”. Brent crude futures rose 1.7% to $98.70 a barrel.

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