1,629 Pound Rebounds, but Dollar Pressure Persists

The pound sterling edged up against the US dollar during Asian trading on Monday, August 31, 2026, after previously falling to its lowest level in over a week. The GBP/USD pair traded below the mid-1.3500 level as the dollar paused following a sharp rally on Friday. A temporary weakening of the dollar, driven by month-end portfolio adjustments, allowed the sterling to stage a recovery.

Sterling also drew support from UK government statements emphasizing fiscal discipline as a priority ahead of the Autumn Budget on October 28. However, sentiment toward the pound remained capped as markets shifted their expectations for a Bank of England rate hike to 2027, pushing the timeline back from late 2026. This shift diminished the sterling's appeal relative to the US dollar.

Meanwhile, the dollar remained well-supported after hawkish comments from Federal Reserve Chair Kevin Warsh boosted market bets on a potential rate hike in September. These expectations kept Treasury yields elevated and maintained a positive fundamental bias for the dollar. Markets currently price in a roughly 57% probability of a September rate hike.

Geopolitical risks also acted as a constraint on GBP/USD gains. Tensions between the United States and Iran flared up again after US forces struck two Iranian launchers on Larak Island, prompting a retaliatory missile attack from Tehran. This escalation boosted demand for the dollar as a safe-haven asset and made investors more cautious regarding riskier currencies. (CP)