The British pound fell to $1.3474 on September 14, marking its lowest level against the US dollar since August 7. This 0.4% daily decline followed attacks by Houthi forces on Saudi Arabian infrastructure, which led to the closure of a major pipeline bypassing the Strait of Hormuz.
In response to the supply disruption, Brent crude prices rose 3% to $108 per barrel. As oil is globally priced in dollars, the surge increased demand for the US currency. Additionally, the dollar gained strength as a safe-haven asset amid rising geopolitical tensions in the region.
The pound faced pressure as Britain, a net energy importer, saw its trade balance deteriorate due to higher oil costs. Market participants are also focused on diverging interest rate expectations, with the Federal Reserve expected to hike rates around September 16, while the Bank of England is anticipated to maintain its current policy.
Analysts at Commerzbank suggest that markets may be overestimating future UK rate hikes, potentially leaving the pound vulnerable to further declines. Despite UK GDP growth of 0.4% in July, which exceeded flat forecasts, high bond yields continue to signal investor concerns regarding fiscal sustainability and inflation.
