Market News

Summary

• Markets now price less than one full 25-basis-point Bank of England rate hike by year-end.
• Lower oil prices have helped push UK gilt yields lower.
• Sterling fell to a one-week low against both the dollar and euro.
• Investors are turning their attention to Jackson Hole and Federal Reserve Chair Kevin Warsh's comments on monetary policy.

Summary

Markets price less than one full 25-basis-point Bank of England rate hike by year-end.

Lower oil prices pushed UK gilt yields lower.

Sterling fell to a one-week low against the dollar and euro.

Focus turns to Jackson Hole and Federal Reserve Chair Kevin Warsh.

Sterling Weakens

The British pound slipped 0.1% to $1.3578, retreating from the six-month high reached the previous week. Against the euro, sterling weakened by nearly 0.1% to 85.75 pence per euro.

BoE Rate-Hike Expectations

LSEG data showed traders pricing 24.7 basis points of tightening by December, meaning markets no longer fully expect a standard 25-basis-point BoE hike this year. Most economists expect rates to remain unchanged in 2026.

Gilts and Oil

UK two-year gilt yields eased to about 4.36% as Brent crude hovered near a two-week low. Lower energy prices could ease inflation pressure and reduce the need for higher UK interest rates.

Jackson Hole

Markets will scrutinise Federal Reserve Chair Kevin Warsh’s remarks at Jackson Hole for clues about the U.S. monetary-policy outlook and the potential impact on the dollar.

UK Fiscal Outlook

Investors are also focused on Parliament’s return and how the government plans to fund its policies ahead of the October Budget. Elevated UK public debt remains an important concern.

FX Implication

Reduced expectations for BoE tightening are a negative factor for sterling. However, any decline in expectations for U.S. rates could weaken the dollar and offset some pressure on GBP/USD.