Sterling Slumps to Two-Week Low as the Dollar Dominates

The British Pound Sterling has fallen to a two-week low against the US Dollar, as the American currency’s strength sweeps across global markets. The US Dollar Index (DXY), a measure of the dollar’s value against a basket of major currencies, has surged to a nine-week high at 99.39, reflecting widespread bets on continued dollar gains through the end of the year. The GBP/USD pair is currently trading lower at 1.3325, marking a significant daily drop.

Why the Dollar is Soaring

The dollar’s powerful momentum is being fueled by increased bets from major funds, particularly those in Europe and Asia, for its continued appreciation. This sentiment is evident in the options market, where bearish trades on the Euro versus the Dollar, expiring by December, recently saw three times more trading volume than bullish ones. This surge in dollar demand comes as US equities turn negative, with the dollar registering weekly gains of over 1.63%. Outside of this strong market dynamic, the only major fundamental news impacting the US is the ongoing government shutdown, which is currently seeing no progress in talks between political parties.

UK Inflation and Fiscal Worries Pressure the Pound
Meanwhile, the Pound faces its own domestic headwinds. A Bank of England policymaker recently stated that UK inflation expectations remain stubbornly high, near 4%. This suggests that prospects for a rate cut have been pushed back, with money markets now projecting a 0.25% cut to the Bank Rate will not occur until April 2026.

Adding to the pressure are worries surrounding the upcoming Autumn Budget. Market participants fear that this budget will emphasize fiscal discipline, potentially through imposing higher taxes, which could further weigh on the already fragile UK economy. This combination of a strengthening dollar and UK-specific economic and fiscal concerns has created significant selling pressure, causing Sterling to sink to $1.33.