fell to 1.3431 on August 3, down 0.38%, and has held beneath $1.35 through Tuesday. Over the past month the pound has strengthened just 0.29% against the dollar. Over twelve months the gain measures 1.00%. Those are the numbers of a currency that has gone nowhere while producing a great deal of intraday movement.
The compression is the defining technical feature. As of August 4 the pair sits near its 8-day exponential average, near its 21-day, near its 50-day and near its 100-day — four separate trend measures converging on the same handful of pips. That configuration removes every directional signal a moving average system can generate and guarantees that the next meaningful move gets confirmed within days rather than weeks.
The underperformance is what stands out. The pound edged lower beneath $1.35 even as the dollar weakened broadly — the fell to 99.8 at the start of August, its lowest in seven weeks, after a 1.5% weekly decline that marked its worst performance in three months. Sterling failed to capture a currency that was being sold against almost everything else. That is a pound story rather than a dollar story, and it is the first genuine sign of domestic weight on the currency since June.
The trigger for the risk-on shift was . Oil collapsed on hopes of an agreement to reopen the Strait of Hormuz, with falling from $84.67 on Friday to $80.34 Monday and $75.88 Tuesday — a 10.4% two-session decline. Lower energy prices ease inflation concerns and reduce the prospect of higher rates, which improved sentiment across risk assets and should mechanically help an energy-importing economy. Sterling did not take the gift.
July’s performance was better. The pound ended the month just above 1.34, touched roughly 1.35 on July 31, and gained more than 1% across the period. That advance carried it from late June levels near 1.32 — close to a seven-month low — and through the 1.34 barrier for the first time in a year on July 10.
The immediate map is tight. Support sits at 1.3400, then the 1.3302 six-week low tested twice in July. Resistance runs 1.3481, then 1.3500, then the 1.36 handle. The weekly forecast band spans 1.32 to 1.36 — a 400-pip range with price sitting almost exactly in the middle.
The 1.3302 Floor Has Held Twice and Nobody Trusts It
The pound has tested 1.3302 on two separate occasions this summer and bounced both times. That level marked a six-week low in July and a multi-week low in the prior test, and the double bottom it created is the strongest structural support on the daily chart.
The path into and out of that floor tells the story. Late June saw the pair near 1.32, close to a seven-month low, with the entire move driven by dollar strength on hawkish policy repricing rather than by anything domestic. Then July 2 delivered a June payrolls print of just 57,000 against a 110,000 to 115,000 consensus, with May revised down to 129,000 and prior months cut by a combined 74,000. The dollar broke and sterling recovered roughly 2% in under three weeks, clearing 1.34 for the first time in twelve months and reaching 1.343 by July 10.
The second half of July was choppier. Cable slipped to 1.3302 on a four-day sell-off, rebounded above 1.3350 on reports of peace negotiations that hit the safe-haven bid, then traded 1.3414. A political announcement pushed it to a daily high of 1.3481 before it reversed to 1.3425 within the same session. The Bank of England decision on July 30 lifted it 0.08% to 1.3376.
The structure that produces is a widening base rather than a trend. Each low has been higher — 1.32, then 1.3302, then 1.3400 — while each high has been capped in the 1.348 to 1.35 zone. That is a compression triangle, and it resolves in the direction of whichever macro release breaks the symmetry.
The overhead barrier at 1.3481 has now rejected price three times. Clearing it opens 1.35 and then the 1.36 handle, which represents the upper boundary of the current forecast band. Beneath 1.3302 the next reference points are the June low near 1.32 and then the 1.30 handle, which would require the Federal Reserve to actually deliver its projected hike.
Nothing about the current range is unusual for a pair whose two central banks sit within 25 basis points of each other.
The Bank of England Held at 3.75% on a 6-3 Vote
The Monetary Policy Committee left Bank Rate unchanged at 3.75% on July 30 in a 6-to-3 split. Three members voted for an immediate quarter-point increase to 4.00%, up from two dissenters in June. It was the fifth consecutive hold, with the rate having sat at 3.75% since December following four cuts across 2025.
The framing was explicitly two-sided. Global conditions were characterized as more uncertain and inflationary, while domestic conditions were described as more benign with respect to the inflation outlook. Upside risks to energy prices from the Middle East conflict were flagged alongside a labour market that has continued to loosen. The committee stated it stands ready to act as needed to keep inflation on track for the 2% target over the medium term.
The decision itself was fully priced. Interest rate futures in mid-July implied roughly an 86% probability of no change. What moved the market was the voting split — support for an immediate rise rising from two members to three, which analysts characterized as a slightly more hawkish hold than expected and evidence that inflation concerns are spreading within the committee.
The governor’s press conference cut against that read. The message delivered was that the committee is not getting closer to a hike despite three members voting for tighter policy, with the six-member majority pointing to softer price pressures than had been expected. That pushback is why sterling managed only a 0.08% gain to 1.3376 on a decision that superficially read hawkish.
A quarterly Monetary Policy Report accompanied the decision. Alongside the rate call, the bank flagged that it may further reduce the pace at which it shrinks its bond holdings — a signal toward slower quantitative tightening that works against the hawkish vote count and represents a genuine easing of financial conditions at the margin.
The next decision lands September 17, two days after the Federal Reserve’s September 15-16 meeting. That sequencing matters: the pound’s reaction function will already have absorbed a U.S. policy move before the domestic one arrives, which historically produces larger moves on the second decision.
Bank Rate at 3.75% remains the highest among G7 central banks after the Federal Reserve.
Three Dissenters Is a Trend, Not a Data Point
The vote drift is the most tradeable piece of information from the July meeting. June produced a 7-2 hold. July produced 6-3. One additional member moving into the hike camp inside six weeks, on a nine-person committee, represents an 11-percentage-point shift in the balance of opinion.
The composition matters. The dissenting bloc now includes the chief economist alongside two external members who have consistently sat at the hawkish end of the distribution. That grouping carries analytical weight beyond its headcount, and a chief economist voting against the majority is a signal the internal staff view has moved.
The mechanism they are worried about is second-round effects. Energy prices have been elevated and volatile because of the Middle East conflict, and the concern is that a supply shock which initially shows up as a relative price change starts feeding into wage settlements and services pricing. That transmission has already been visible: euro area services inflation ran 3.3% in July with core at 2.5%, and the equivalent dynamic in the United Kingdom is the reason the domestic services measure has stayed sticky.
The offsetting argument from the majority is that domestic conditions have improved. Inflation fell more than expected to 2.6% in June, wage growth has cooled, and economic activity has been soft enough that the labour market is doing disinflationary work on its own. Six members concluded that holding was appropriate on those grounds.
One more dissenter takes the committee to 5-4 and puts a hike genuinely in play for September 17. That is the threshold sterling bulls are watching. Two more inverts the majority entirely.
The counterweight is that the collapse in crude this week directly undercuts the hawkish case. West Texas Intermediate falling 10.4% in two sessions and breaking below $80 removes the energy impulse the dissenters cited. If the Hormuz agreement lands, the argument for a September hike weakens materially, the vote likely reverts toward 7-2, and the pound loses the yield support that has kept it above 1.33 all summer.
The dissent count and the oil price are now inversely correlated. That is an unusual and unstable basis for a currency’s rate premium.
UK Inflation at 2.6% Undercut the Hike Case
Consumer price inflation eased to 2.6% in June, a larger decline than economists expected and the input that gave the majority room to pause rather than tighten. That reading sits 60 basis points above the 2% target and beneath the equivalent euro area figure of 2.9% and far beneath the U.S. figure of 4.20% recorded in May.
The composition is less encouraging than the headline. Services inflation has stayed sticky, which is the specific reason the bank is holding rather than cutting. A goods-driven disinflation with services running hot describes an economy where the external shock is fading but domestic price-setting has not normalized — the configuration that keeps policy on hold indefinitely rather than moving in either direction.
The energy exposure is the structural vulnerability. Britain imports more of its energy than most comparable economies, which means a renewed crude spike hits domestic inflation harder than it hits the United States or, to a lesser degree, the euro area. Both the domestic committee and the Federal Reserve explicitly flagged energy-driven supply shocks in June. A price move that adds 30 basis points to U.S. inflation adds more here.
That asymmetry runs both ways and is currently working in sterling’s favour on the growth channel and against it on the rate channel. Crude down 10% in two sessions improves the terms of trade for an energy importer and reduces the drag on real household income. It simultaneously removes the inflation argument the three dissenters used, which reduces the probability of a September hike.
The forward path is the question. Inflation is expected to tick up later in the year, which the committee acknowledged when holding despite that projection. If the increase materializes and services inflation fails to cool, the hawkish bloc gains the evidence it needs. If crude stays beneath $80 and the energy base effects turn favourable, headline inflation falls toward 2% and the entire debate shifts back toward cuts.
Relative inflation dynamics are what determine sterling’s medium-term direction. As long as UK inflation cools more slowly than the euro area’s, the pound retains a yield advantage over the euro. Against the dollar, with U.S. inflation at 4.20%, the comparison currently runs the other way.
The Rate Differential Has Effectively Disappeared
Bank Rate sits at 3.75%. The federal funds target sits at 3.50% to 3.75%. At the midpoint of 3.625%, sterling carries a 12.5 basis point yield advantage. Against the upper bound the differential is zero.
That is the smallest gap between these two policy rates in years, and it fundamentally changes how the pair trades. When the rate differential disappears, cable stops being a simple interest-rate trade and becomes far more sensitive to sentiment, positioning and political headlines. The result is choppier, less predictable price action — which is precisely what the last six weeks have delivered.
The gilt market shows the same compression. UK ten-year yields sat 35 to 45 basis points above equivalent Treasuries earlier in the year, creating genuine structural demand for sterling assets from pension funds, insurers and sovereign wealth funds that must buy pounds to access those yields. That background bid is one reason sterling held up better than the euro through the hawkish repricing. With the at 4.686% after touching a 2026 high near 4.73%, and the at 5.232% near levels last seen in 2007, the spread has narrowed materially.
The gilt yield touched near 5% during July as surging oil stoked inflation fears and signalled that policy could stay elevated longer. That move supported the pound at the time. Crude falling 10% this week works in the opposite direction on the same channel.
The forward pricing is where the asymmetry sits. The swaps curve implies 50 basis points of tightening to 4.35% over the next twelve months — a substantially hawkish path for a committee whose governor has explicitly pushed back against imminent increases. There is scope for that pricing to be revised lower, and a downward adjustment to UK rate expectations is a direct headwind for the currency.
Against that, markets price roughly 68% odds of a 25 basis point Federal Reserve hike in September following a 9-to-3 hold on July 29. If the Federal Reserve moves and the domestic committee does not, the differential inverts to 25 basis points in the dollar’s favour and cable trades toward 1.30.
Both curves cannot be right. One of them gets repriced on Friday.
