CAPITALDIGEST MARKET REVIEW, 03/08/2026

POUND UNFAZED BY BUDGET DATE, SET FOR BEST MONTHLY SHOWING SINCE APRIL

The pound was set for its best monthly performance since April against the dollar and euro on Friday, showing little immediate reaction to news that the next ​UK budget will be brought forward. British finance minister John Healey said he will hold his first budget ‌on October 28, as he pledged to stick to the borrowing rules he inherited from his predecessor Rachel Reeves. The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. Sterling was last down 0.3% against the dollar at$1.342, but was still headed for a weekly gain. It was also set for ​a more than 1% jump for the month, clocking gains after two straight months of ​declines. It inched 0.2% higher against the euro on the day , but was set for ⁠a second straight month of gains. Sterling’s moves were mostly driven by price action in other major ​currencies a day after Japanese authorities were suspected of yen-buying market intervention. The U.S. Treasury has informed a number of banks that it may intervene in the Japanese yen market on Friday and that they should “stand ready for future action”, sources familiar with the matter told Reuters. Still, attention ​was returning to the UK outlook after the UK budget date announcement. Traders will be watching the ​budget closely for clues on how the UK’s new prime minister and finance minister will boost economic growth without ‌endangering stretched ⁠public finances. Prime Minister Andy Burnham, who moved into Downing Street less than two weeks ago, has said he will honour the fiscal rules which include a pledge to balance day-to-day spending with tax revenues by the end of the decade. Economists say the government has only a small margin of error ​for hitting that target ​and some of Burnham’s ⁠policy priorities — such as extra defence spending and better social care — will put more strain on the public finances. Some analysts say easing pressure on the ​Bank of England to hike rates is a positive for UK borrowing ​costs although that could ⁠weigh on sterling. On Thursday, the BoE kept rates on hold as it waits for a keener sense of how much the U.S.-Iran war will push up inflation. Money markets price in at least one 25-basis-point rate increase ⁠by the ​year-end. “The Bank of England managed to comfort markets about the ​inflation trajectory, in line with our own economists’ views. This should give the BoE more time to hold the policy rate,” ​ING analysts said in a note.

DOLLAR SLIPS AGAINST YEN AS INTERVENTION RISKS DRAG

The dollar fell against the Japanese yen on Friday, ​with traders braced for a second round of intervention after Japanese authorities stepped in to prop up their currency a ‌day earlier. The dollar slipped 0.8% to 158.225 yen, a day after sinking 2.4%. The U.S. Treasury has informed a number of banks that it may intervene in the yen market on Friday and that they should “stand ready for future action,” a source familiar with the matter told Reuters. Japan was also receiving support from the U.S. that “goes beyond psychological support”, Japan’s top ​foreign exchange diplomat said on Friday. Eric Theoret, FX strategist at Scotiabank, said it was unclear if Friday’s modest rise in the yen ​was a result of actual intervention, or traders reacting to the possibility of one in the near future. “In thin ⁠liquidity, intervention can have a much greater impact. Even the mere kind of possibility that this could happen is definitely something that markets are ​going to respond to in a very sensitive way,” Theoret said.Strategists at Goldman Sachs said they see intervention as an effective tool for authorities to ​buy some time before fundamental factors turn more positive. “It seems likely that authorities would intervene further in coming days if the yen begins to unwind (Thursday’s) move, as was the case in May of this year,” the strategists said in a note. The Bank of Japan earlier in the day kept short-term interest rates steady at 1% in a ​widely expected move.The BOJ, which hiked rates to a 31-year high last month, said for the first time that underlying inflation could exceed its ​target, signaling further rate hikes from as soon as September. BOJ Governor Kazuo Ueda said many of the board members’ inflation forecasts are fairly high, and they see risks skewed ‌to the ⁠upside. “We’d characterize that as a hawkish hold, in the sense that they’re very much open to tightening rates, I think, at the next meeting in September,” Scotiabank’s Theoret said. Japan’s slow pace of rate hikes has been blamed for pushing the yen to 40-year lows below 163 per dollar recently. Most analysts polled by Reuters expect the BOJ to raise rates again to 1.25% by year-end. Thursday’s moves resulted in spot yen trading volumes surging to their highest in 10 ​years on the EBS trading platform ​and futures trading volumes hitting ⁠their highest on record, the CME Group said. In a rare coordinated move, South Korea also conducted dollar-selling intervention on Thursday to support its currency, a market source told Reuters. The won, which rose to a nine-month high on Thursday, was ​down about 1% at 1,439.66 against the dollar.

STERLING SLIPS AS OIL SLIDES, US RATE HIKE BETS GROW

 Sterling fell to a more than three-week low against ‌a stronger dollar on Tuesday as lower oil prices eased inflation concerns, while expectations of a U.S. interest rate hike this week continued to support the greenback. The pound traded near ​its weakest level since early July at $1.327 on Tuesday, down 0.1% on ​the day. Brent crude retreated 2.6% to $86.08 a barrel, extending its pullback ⁠from last week’s spike above $100, amid growing hopes of a resolution to the U.S.-Israeli war ​on Iran after U.S. President Donald Trump said Washington was having “” with ​Tehran. Rate-sensitive 2-year gilt yields retreated 3 bps to 4.352%. The Federal Reserve wraps up its two-day policy meeting on Wednesday, with traders pricing in a nearly 40% chance of a 25-basis-point rate ​hike, up from about 20% a week earlier, according to LSEG data. U.S. ​rate futures show 95% probability of a quarter-point increase by September. “With a September hike now fully ‌priced ⁠in by futures, we think that the bar for a hawkish surprise that meaningfully boosts the dollar is high,” said Matthew Ryan, head of market strategy at global financial services firm Ebury. Softer labour-market data has cemented expectations the Bank of England stands ​pat on Thursday, but ​unease over the ⁠spending plans under the new Prime Minister Andy Burnham have weighed on the pound this month. Burnham on Monday ruled out ​any changes to stamp duty, a tax on home sales, at ​the next ⁠budget due later in the year. Previously Burnham has said he may ask people to pay “a little more” in tax as the country faces major spending pressures from an ageing population ⁠and ​a need to rebuild its armed forces as ​well as broader investment goals. The pound was largely unchanged against the euro at 0.855 after retreating 1.1% ​from last week’s one-year high.

DOLLAR SLIPS AS FED HOLDS RATES STEADY

The U.S. dollar fell across the board on Wednesday after the Federal Reserve held interest rates steady, ​a choice that may intensify questions about how U.S. central bank chief Kevin Warsh will deliver on his commitment ‌to bring inflation back down to the 2% target. The widely expected decision to leave the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who “preferred” a quarter-percentage-point hike at this meeting. In leaving the policy rate pinned in the range it has ​been since December, Fed policymakers are embracing the idea that current borrowing costs are creating enough friction in the economy to ​reduce any inflation that isn’t, like the effect of tariffs on goods prices, expected to fade on its ⁠own. “Thus far, very dollar-negative decision, but in previous meetings, the first reaction may be the wrong one,” said Juan Perez, director of trading ​at Monex USA in Washington. “We believe that for the remainder of the year, the Fed will hesitate and not hike rates,” he said. Referring to ​the three dissenting votes favoring rate hikes versus the Federal Open Market Committee decision to hold the federal funds rate steady, Warsh said at a press conference that “I asked for a good family fight, and I got one. That’s the purpose. That’s the design feature,” adding “there was a large majority support for the decision ​that we made in the room.” The dollar index , which tracks the U.S. currency against a basket of six others, fell 0.3% to 101.07. ​The euro rose 0.4% to $1.14315, while sterling rose 0.4% to $1.3342. “We expect Warsh to remain vigilant about inflation but to acknowledge that the recent subdued inflation prints ‌could indicate ⁠the possibility that the current stance of policy is appropriate, which is also our view,” said Christopher Hodge, chief U.S. economist at Natixis. “If that is not the case, the Fed stands ready to stamp out any price pressures,” Hodge said. Meanwhile, hostilities in the Middle East flared anew, sending oil prices higher, after joint strikes by U.S. and Saudi Arabia on Iran-backed groups in Iraq. The strikes came hours after the U.S. military said it ​had averted a surprise Iranian attack ​on U.S. troops in the ⁠region. The dollar fell 0.3% against the yen to 163.35, but remained not far from a 40-year high and kept traders on alert for potential intervention from Japanese authorities to support it.

POUND CLIMBS AS INVESTORS SCALE BACK RATE-HIKE BETS AFTER CRUDE PLUNGE

Sterling edged higher against the dollar on Monday as a sharp ​drop in oil prices eased worries about energy-driven inflation and tempered expectations for further ‌Bank of England tightening ahead of this week’s policy meeting. The pound rose 0.07% to $1.3330 by 1010 GMT, recovering for a second straight session from Thursday’s three-week lows. Brent crude prices plunged 9% to $87.84 a barrel after the U.S. and Iran paused strikes over ​the weekend, boosting hopes of de-escalation. The flare-up in hostilities had last week briefly pushed ​oil prices above $100 a barrel, stoking concerns about its impact on inflation. Two-year gilt yields – ⁠which are more sensitive to the near-term outlook for interest rates than other maturities – fell 6 bps ​to 4.362%, a steeper decline than that seen in equivalent U.S. and German government bonds. The BoE is widely ​expected to leave rates unchanged at 3.75% on Thursday after inflation came in below the central bank’s forecasts in June. However, economists and markets remain divided over the longer-term outlook, with higher energy prices threatening to complicate the inflation picture. Money ​markets are pricing in roughly an even chance of a September rate hike. “If inflation is still expected ​to remain contained, we believe the BoE will leave rates unchanged for the rest of the year,” wrote ING FX ‌strategist Francesco ⁠Pesole, adding that a dovish repricing remains “the clearest near-term risk for sterling.” Against the euro, sterling strengthened 0.2% to 84.55 pence , extending its recovery from a more than one-year low of 84.5 pence touched on July 15.