The pound hovered around $1.345, near its strongest level in almost two weeks, and was on track for a monthly gain of over 1% against the dollar, its best monthly performance since April. Sterling found support as investors reassessed the Bank of England’s July decision and as political uncertainty in the UK receded, following the appointment of the country’s seventh prime minister in ten years and the new government’s commitment to uphold fiscal rules.
The Bank of England voted 6–3 to leave interest rates unchanged, with three policymakers backing an increase, versus market expectations of a 7–2 split. Even so, Governor Andrew Bailey pushed back against expectations of an imminent tightening cycle, stressing that the disinflation trend remains intact. Some officials also indicated that rate cuts could come back into focus if the conflict involving Iran is resolved. Markets are now pricing in only one rate hike by year-end, while renewed US–Iran tensions continue to cloud the economic outlook.
