GBP Surges to Two-Week High as Investors Reassess BoE Policy

The British pound (GBP) reached a two-week high against the US dollar (USD), reaching 1.3552 on Thursday, its highest level since August 29th.

This strengthening of the pound comes despite rising oil prices above $100 per barrel and escalating tensions in the Middle East.

The main driver behind the pound's support remains a reassessment of the Bank of England's monetary policy outlook, with investors not expecting interest rate hikes at its next meeting but pricing in at least two rate increases by March 2024 with a 40% probability of a third increase.

This is in contrast to expectations from the Federal Reserve, which sees only two rate hikes over the same period.

The UK's inflation backdrop continues to support expectations of tighter monetary policy, with consumer price inflation rising to 2.9% in July and additional pressure from rising oil and gas prices due to its dependence on imported energy.