POUND STERLING SLIDES AS WALLER REKINDLES RATE HIKE BETS

Sterling faced notable selling pressure on Friday, with GBP/USD dipping to around 1.35576 after touching earlier lows near 1.3538, still down roughly 0.40% on the day. The trigger: Federal Reserve Chair Waller's latest remarks, prioritizing inflation containment at the top of the policy agenda—a stance markets swiftly read as hawkish.

**Rate hike expectations re-priced**

According to Bloomberg, swaps tied to Fed policy meeting dates now fully price in a 25-basis-point hike in September, with expectations climbing from 23 basis points the prior day and just 8 basis points earlier this week. Ebury's head of market strategy Matthew Ryan noted that markets have entered a phase where "any slight shift in tone could tip the balance toward tightening."

**Inflation and geopolitical factors converge**

The rebound in oil prices is another key variable fueling inflation expectations. With lingering doubts over the latest US-Iran peace agreement, crude has bounced roughly 4% from Thursday's three-month low, adding upward pressure on energy costs and further constraining the Fed's policy room. BlackRock senior portfolio manager Jeffrey Rosenberg commented on Bloomberg TV that the core tension now is "whether the Fed is chasing market pricing or whether markets are forcing the Fed to tighten"—and based on current price action, it's the latter.

**Sterling's fragility amplified**

Sterling's sensitivity to monetary policy expectations is already elevated, and with the Bank of England lacking a clear hawkish policy path, any uptick in Fed rate hike bets directly magnifies downside pressure on the pound. Market reports show major Wall Street banks have largely scrapped forecasts for Fed rate cuts in 2026, with most now only projecting a single cut in 2027—a shift that provides medium-term support for the dollar while leaving sterling struggling to reverse its weak trajectory in the near term.