Pound Hits Three-Month High as US Dollar Weakens

Sterling traded near 1.35342 against the dollar on Tuesday, holding steady within Monday's range after briefly approaching the 1.3600 level, marking its strongest performance since early May. According to market sources, the rally was primarily driven by broad dollar weakness rather than pound-specific fundamentals.

**Dollar Weakness as Core Driver**

The dollar index fluctuated lower as investors repriced the Federal Reserve's monetary policy path, offsetting market uncertainty over the Bank of England's future policy direction. Sterling was lifted passively amid broad dollar softness, recovering nearly 300 pips from a bottom near the 1.3300 level in the first week of August.

**Failure to Sustain Highs**

Despite sterling breaking above 1.3550 for the first time in three months on Monday, it gave back all gains within hours, with a net advance of less than 10 pips. Analysts noted that sterling itself did not drive the move—the breakout was more a function of dollar weakness—thus lacking sustained upward momentum. The current price remains just below 1.3550, with market focus on whether it can hold that level effectively.

**Policy Signals in Focus Ahead**

Investors are closely monitoring shifts in policy expectations from both the Federal Reserve and the Bank of England. If the dollar continues to weaken, sterling may have further upside room; however, if the BoE signals a dovish stance, gains could be capped. In the near term, the 1.3600 area constitutes key resistance, while the bottom zone below 1.3300 serves as important support.