The British pound recovered earlier losses to trade just above $1.32, remaining near a two-month low and heading for a weekly drop of more than 1% against the US dollar. The move came amid heightened political uncertainty, shifting global risk sentiment, and stronger-than-expected UK retail sales.
Domestically, attention sharpened after Greater Manchester Mayor Andy Burnham won the Makerfield by-election, bolstering his standing as a potential challenger to Prime Minister Keir Starmer. On the geopolitical front, the abrupt cancellation of planned US–Iran peace talks in Switzerland reignited concerns about the durability of the tentative Middle East ceasefire agreed over the weekend.
On the policy side, the Bank of England left interest rates unchanged at 3.75% and struck a cautious tone, lowering its projected peak inflation for Q4 2026 to 3.25% from 3.6%. The Federal Reserve also kept rates steady but signaled that further tightening remains a risk. Money markets now anticipate at least one 25 bp rate hike from both the BoE and the Fed before the end of the year.
