GBP Rallies Against USD Amid Middle East Conflict and BoE Rate Hike Expectations

The British Pound has seen some relief this week as the US Dollar takes a breather. The USD/GBP pair gained over 0.18% on Friday, reaching 1.3243 after bouncing off daily lows of 1.3209. This move comes despite rising US Treasury yields and increased expectations for further Fed tightening.

The jump in energy prices, driven by the Middle East conflict, has contributed to inflationary pressures and pushed investors to price in further Bank of England rate hikes. The BoE held rates unchanged last week but opened the door for future tightening if inflation continues to surge.

Traders now expect 33 basis points of monetary tightening from the BoE this year, with odds of a move at the November meeting at 77%. For 2027, investors eye 105 basis points of tightening by the central bank.