Pound Holds Near Seven-Week Low as Fed and Bank of England Diverge on Rates

The pound edged down to around $1.338 on Monday, hovering near its lowest level in seven weeks, as currency traders continued to digest a widening gap between the Federal Reserve’s and the Bank of England’s approaches to interest rates.

Sterling had already fallen sharply the previous Wednesday after the Fed raised interest rates and signalled it was prepared to tighten further, a move that boosted the dollar broadly. The Bank of England, by contrast, held its own rate steady at its meeting the following day, though it cautioned that a further hike could still be needed if the region’s ongoing conflict with Iran keeps pushing up energy prices, according to Reuters reporting carried by Devdiscourse.

Markets Now Lean Toward More Bank of England Tightening

Money markets were last pricing in a 65% probability that the Bank of England will raise rates again at its November meeting, with traders broadly anticipating four separate quarter-point increases before the year is out, the same reporting showed. That marks a notable shift from a central bank that had been expected to stay on hold for the rest of 2026.

The shift partly reflects domestic data: retail sales for August came in stronger than forecast, and July’s growth figures also beat expectations, giving the Bank more room to justify tightening if energy-driven inflation persists.

A More Hawkish Fed, Too

On the US side, expectations for a second Fed increase at its late-October meeting have also been climbing. According to FXStreet, market-implied odds of that move rose to roughly 53%, up from about 40% right after the Fed’s mid-September decision. Chicago Fed President Austan Goolsbee has argued that faster, larger increases may be warranted if current inflation pressure turns out to be driven by strong demand layered on top of high oil prices and tariffs, rather than by supply shocks alone.

GBP/USD has been stuck just below the 1.3400 level for three consecutive sessions, having tested a September low just under 1.3350 a few days earlier. Analysts pointed to 1.3500 as a resistance level dating back to the Fed’s mid-September decision, with 1.3350 and then 1.3300 as the next support levels if the pair weakens further.

Why It Matters

For UK households and businesses, the currency’s direction matters less on its own than as a signpost for where borrowing costs are heading. A Bank of England that ends up hiking four times by year-end, on top of a Fed doing the same, would mark a considerably tighter path for both economies than markets were pricing in only a few weeks ago — with knock-on effects for mortgage pricing and business borrowing well beyond the currency markets themselves.