Pound slips to 1.3343 as Bank of England hike bets build

What happened

The pound fell about 0.17% against the dollar on Tuesday, with GBP/USD trading at 1.3343, as the dollar shrugged off reports that Iran could reopen the Strait of Hormuz. Deutsche Bank's UK economists shifted their Bank of England base case from no hikes to two 25bp moves, in November and February. Brown Brothers Harriman noted that UK fiscal policy is turning more restrictive, keeping GBP/USD under 1.3400.

Why it matters

Expectations of higher interest rates usually support a currency. Here the reason matters: inflation that is largely driven by energy, combined with tighter government budgets, raises the risk that higher rates slow growth. Markets weigh both effects, and the pound also moves on the gap between UK and US rates, so a hawkish Fed can offset hawkish Bank of England bets.

What to watch

Comments from Bank of England policymakers, upcoming UK inflation data, and whether the rate gap with the US narrows or widens.