The British pound reached its lowest value against the dollar during the past 10 weeks when the dollar strengthened due to the new U.S.-EU trade agreement. Sterling reached its lowest point at $1.3316 since late May before it rebounded to $1.3357.
The euro lost 0.1% against the pound to reach 86.71 pence after reaching its highest point in two years on Monday. The euro declined because investors took on excessive positions while their forecasts about interest rate paths shifted.
ING strategist Chris Turner explained that euro/sterling market volatility results from the different fiscal and monetary policies between the euro zone and the UK where euro zone policy tightening will end before UK policy does. The U.K. benefits from improved tariff conditions in its U.S. agreement which provides some support to sterling.
The latest British inflation data revealed that shop prices experienced their fastest annual increase since 2021 which deepened worries about sustained price growth. The June data showed both mortgage approvals and consumer borrowing increased which indicates that housing and credit markets continue to gain momentum. The Bank of England faces increased difficulty in determining its interest rate path because of these market factors which now consider additional rate hikes.
