GBP Slumps Amid Oil Price Drop, Bank of England Rate Hike Odds Scale Back
The British pound (GBP) has been in limbo as markets have scaled back expectations of a Bank of England rate hike following a decline in oil prices. The GBP/USD pair edged higher to 1.3371 on Tuesday, but the outlook for interest rates remains uncertain.
Brent crude fell to $100 per barrel after Donald Trump left open the possibility of a diplomatic solution with Iran and an increase in regional oil supplies added to the downward pressure on prices.
Bank of England officials have stated that the outlook for inflation and interest rates will largely depend on oil and gas prices in the coming months. Markets now estimate the probability of a Bank of England rate hike in November at approximately 80%, and that of another increase before year-end at around 56%.
The UK autumn Budget is also gaining attention as the government considers extending the new property tax to homes worth more than $1.5 million. Meanwhile, expectations of further Federal Reserve tightening continue to support the US dollar and limit sterling's upside potential.