Sterling underperformed even as the dollar weakened, with easing oil prices and expectations for a slower path on 2026 rate hikes shaping sentiment.
The British pound edged lower to trade below $1.35, lagging broader foreign-exchange moves even as the US dollar weakened. Sterling came under pressure as markets reassessed the Bank of England's policy path after last week's meeting reinforced the view that policymakers are not in a hurry to tighten monetary policy, leading investors to trim expectations for interest rate hikes in 2026. Risk sentiment improved at the same time after oil prices fell on hopes for a US-Iran agreement to reopen the Strait of Hormuz, a key global shipping route, which eased concerns that higher energy costs could feed inflation and keep borrowing costs elevated. Crude also weakened after President Donald Trump said negotiations with Tehran would resume on Monday, reducing fears of a broader escalation in the conflict.