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Sterling slipped below $1.34 as hawkish comments from Federal Reserve Governor Christopher Waller and stronger-than-expected US inflation data boosted the dollar. This followed a recent recovery in the pound, supported by easing AI and Middle East concerns and falling oil prices, which weakened demand for the greenback and encouraged risk-taking. The dollar strengthened on Tuesday after Waller signaled the possibility of further interest rate increases, while US consumer prices rose more than anticipated in October. Meanwhile, Bank of England Deputy Governor Clare Lombardelli signaled further monetary tightening, warning that Britain's “low-hire, low-fire” labor market could make it harder to ease wage pressures. She said another interest rate increase in the near term was likely unless there was clearer evidence of easing inflationary pressures. Investors are now looking ahead to Thursday's UK third-quarter GDP report, with growth expected to reach 0.7%.

Sterling recovered above the $1.34 level, attempting to claw back last week's losses as falling oil prices eased market concerns and investors awaited key economic data due later this week. Brent crude fell towards $90 a barrel amid diplomatic efforts to resolve the conflict in the Middle East. US President Donald Trump struck an optimistic tone, saying further strikes on Iran were “highly unlikely” if negotiations over its nuclear programme and the reopening of the Strait of Hormuz made significant progress. Meanwhile, investors are looking ahead to the UK's third-quarter GDP report on Thursday, which is expected to show economic growth of a solid 0.7%, supported by strong services output. Expectations of further Bank of England rate hikes are also helping underpin sterling's appeal. Across the Atlantic, attention will turn to Tuesday's US CPI report, which could provide further clues about the Federal Reserve's monetary policy outlook and the timing of potential interest rate hikes.

Sterling fell below $1.335, pulling back from near two-month highs, after a strong US jobs report lifted the dollar. The greenback was already benefiting from safe-haven demand amid a global technology selloff, as sentiment toward AI stocks weakened on concerns that a Democratic sweep in the congressional elections could lead to tighter regulation and slow the industry's expansion. At the same time, markets continued to digest the implications of the Bank of England's policy decision on Thursday, where the central bank raised interest rates for the first time in more than three years. Governor Andrew Bailey indicated that further increases may be required unless the war in Iran comes to an end. In response, investors have ramped up expectations for additional monetary tightening, with three more rate hikes now fully priced in by November 2027. The central bank also warned that inflation could peak at 4.9% in Q2 2027, while its adverse scenario envisages a sharper rise to 6.2% in Q3.