Sterling's Surge Amid Fed Shake-up and Eurozone Uncertainty

On Tuesday, sterling saw a modest increase against the dollar following U.S. President Donald Trump's decision to dismiss Federal Reserve Governor Lisa Cook, sparking apprehension about the central bank's autonomy.

Sterling initially climbed as much as 0.3% against the dollar after Trump's announcement, before settling at a 0.1% rise to $1.3466. The move came amid renewed downward pressure on short-term U.S. yields and growing concerns about the Fed's independence, creating a challenging environment for the dollar. Lee Hardman, a senior currency analyst at MUFG Bank, highlighted this in a note.

In parallel, political developments in France are on investors' radars, with the country's minority government facing a potential ousting. Chris Turner, global head of markets at ING, noted that this political uncertainty may affect euro positions, benefiting sterling. British inflation remains a concern, with August shop prices seeing a significant rise, underscoring the Bank of England's challenges. Money markets don't expect an interest rate cut until 2026, per LSEG data.

(With inputs from agencies.)