Pound Drops as UK Outlook Worsens
The pound weakened to around US$1.35 on Wednesday (April 29th) as market participants assessed updated UK economic projections and awaited policy decisions from the Fed and Bank of England (BoE), amid attention to developments in US-Iran talks. This movement reflects sterling's increasing sensitivity to a combination of UK domestic factors and geopolitical risks affecting global sentiment.
Domestically, Lloyds revised up its 2026 UK inflation forecast to 3.4% from 2.6%, while cutting its 2026 GDP growth estimate to 0.5% from 1.2%. The bank also no longer expects a BoE interest rate cut this year, having previously projected two cuts, and sees unemployment peaking at 5.6% in the fourth quarter (from 5.3%).
This week, both the Fed and the BoE are expected to hold interest rates, in line with caution amid the Middle East crisis. However, the market still anticipates two 25 bps BoE interest rate hikes in 2026, making the path of policy expectations a key determinant of sterling's direction against the dollar.
Externally, Brent's surge to a four-year high adds a layer of risk to the inflation and growth outlook, particularly if energy pressures persist. The market is also paying close attention to a Wall Street Journal report that US President Donald Trump directed staff to prepare for a prolonged naval blockade of the Strait of Hormuz to increase economic pressure on Iran—a development that could potentially exacerbate FX volatility through energy prices and risk sentiment. (asd)
Source: Newsmaker.id
