The Pound strengthened against the US Dollar on Tuesday as traders booked profits following the greenback’s recent rally to more than one-year highs ahead of the release of key US inflation data later in the day, while remaining broadly unchanged against the Euro.
Sterling was up 0.24% at $1.3378 at the time of writing, staying within reach of Friday’s one-month high of $1.3452.
Renewed exchanges of fire between the US and Iran in the Gulf have driven oil prices sharply higher this week, a development that tends to weigh more heavily on the Pound than the Dollar due to Britain’s dependence on imported energy and persistent inflation pressures.
US consumer price inflation is forecast to have slowed to 3.8% in June from 4.0% in May. However, the latest escalation in Middle East tensions has led investors to price in at least one Federal Reserve rate hike this year, alongside two increases from the Bank of England, a scenario that would, in theory, lend support to Sterling.
The Pound has faced few obstacles in recent weeks. On a trade-weighted basis, Sterling has climbed to its highest level in a year, helped largely by weakness in the Euro. The single currency has lost nearly 3% over the past four months and was last down 0.1% on the day at £0.8519.
The near-term outlook for the Euro against Sterling remains bearish as long as the pair stayed below its June 2025 high of £0.8575. A sustained recovery would require a move above this week’s high of £0.8541, Reuters news agency reports.
Attention in UK markets has now shifted to Andy Burnham, who is due to succeed Keir Starmer as prime minister on 20th July, and the appointment of his next chancellor.
Prediction markets currently favour energy security minister Ed Miliband for the role. Widely regarded as supportive of looser fiscal policy, his potential appointment has unsettled gilt investors, who are already wary about the UK’s fragile public finances.