G10’s ‘surprise’ currency star could stumble as peers hike interest rates

G10’s ‘surprise’ currency star could stumble as peers hike interest rates. Traders thought the Bank of England may be pushed to hike interest rates in response to an inflationary shock from the Iran war, but the central bank is now seen as more dovish than those in the euro area and the U.

What happened

DXYJPY=Follow your favorite stocksCREATE FREE ACCOUNTwatch nowVIDEO7:2407:24UK PM stuck between Labour's election pledges and bond market: AnalystSquawk Box EuropeThe British pound has largely shrugged off another change of government and geopolitical shocks to outperform many of its peers this year, but the currency's recent weakness could be set to deepen. Central bank rate hikes typically boost their home currency. watch nowVIDEO4:5904:59Analyst sees more than 80% chance of a September Fed hikeInside IndiaDovish messaging by the BOE on Sept.

Image source, Getty ImagesByMichael RaceBusiness reporter, Reporting fromNew YorkPublished4 September 2026Donald Trump has called for interest rates to be cut later this month, claiming higher rates put the US at a "very unfair disadvantage". Last week, Kevin Warsh, chairman of the US central bank, signalled that rates could be hiked if policymakers were not confident price rises were easing for Americans. "Even the most committed dove would struggle to find anything in the August employment report to justify keeping interest rates unchanged," said Stephen Brown, chief North America economist at Capital Economics.

"A hike in rates just became a bit more likely," said Neil Birrell, chief investment office of investment firm Premier Miton. Almost 60% of traders were betting on an interest rate hike in September, according to CME Group's "FedWatch" data.

The wider picture

In response to the stronger jobs figures raising expectations of a interest rate hike, US stock market indexes were trading down on Friday. That all plays into a feeling that many people have that life is about to get more expensive and that in many places interest rates are set to rise. The British pound has benefited from a resilient economy and rate hike expectations, but the BOE looks increasingly dovish while a crucial budget lies ahead.

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsThe British pound has gained against many of its peers in the year to date, though strength from earlier has begun to fade. The resignation of Prime Minister Keir Starmer on July 20 left Britain facing its seventh leader in 10 years, with markets watching closely whether a new administration would hold to the "fiscal rules" repeatedly emphasized by former Finance Minister Rachel Reeves. K. borrowing costs have risen under Starmer's quickly appointed successor Andy Burnham, also of the center-left Labour Party, but that has occurred in lockstep with a global government bond sell-off.

In a Friday note, Ryan said sterling had been "the surprise outperformer" among the G10 group of wealthy nations over the past three months, tying this to an unexpectedly resilient U. The pound also drew support at the start of the Iran conflict in April on outsized market expectations for a monetary policy response to inflation fears from the Bank of England, Jane Foley, senior FX strategist at Rabobank, told CNBC.

What has been reported

Despite the resurgence of price pressures, the Bank of England has held its key interest rate at 3. Current market pricing suggests low odds of a rate hike at its September meeting. In contrast, there are high expectations for a hike by the European Central Bank on Wednesday and, increasingly, the Federal Reserve later this month. Ebury's Matthew Ryan said the budget contained a high level of political risk, and was likely to contain "a combination of higher ancillary tax rates and an increase in debt issuance in order to fund Burnham's spending ambitions.

The president's remarks came as stronger-than-expected jobs figures in the US added to growing expectations that rates could be increased, with inflation still running high and American households feeling the pinch of rising prices. The next interest rate decision will be made on 15-16 September. He added that the strength in the jobs market meant that the latest inflation figures released next week would only need to be moderately above the Fed's target to fuel expectations of a September hike.

Sterling faces a further test from the October budget which will be closely watched for its impact on the U.

What happens next

K. 's growth trajectory, debt levels and borrowing costs. 9% against the Swedish krona and 1% against the Canadian dollar. Matthew Ryan, head of market strategy at financial services firm Ebury, said that a "clean and orderly transition of power" had "removed a potential banana skin and eased the perceived political risk premium attached to the pound. 6% expansion in the first quarter — one of the strongest performances among advanced economies. Sunny weather and excitement around the FIFA World Cup boosted consumer spending, while business activity remained surprisingly resilient despite the volatile geopolitical backdrop.

K. is highly vulnerable to higher oil and gas costs, both of which have spiked this year, helping push headline inflation near 3%. 17 would "further expose the pound" just before markets get anxious for the first annual budget announcement of Burnham's administration on Oct.

The report has been compiled by The Daily Waves using information reported across cnbc.com, bbc.co.uk. Details are presented according to the information available at the time of publication and may change as authorities, organisers or other relevant parties provide updates.