GBP/USD Hits Two-Week High on Reassessed BoE Outlook

The GBP/USD pair rose to its highest level in two weeks on Thursday, reaching $1.3552. Despite oil prices increasing above $100 per barrel and escalating tensions in the Middle East, the pound strengthened.

The main driver of this support is a reassessment of the Bank of England's monetary policy outlook. Investors do not expect interest rates to rise at the next meeting, but markets are pricing in at least two rate hikes by March next year, with about a 40% probability of a third increase.

This view contrasts sharply with expectations for the Federal Reserve, where investors anticipate only two rate hikes over the same period. The UK inflation backdrop is also contributing to expectations of tighter monetary policy, with consumer price inflation accelerating to 2.9% in July, up from 2.6% the previous month.

However, Bank of England Governor Andrew Bailey has stressed that further tightening is not guaranteed. Elevated oil prices and fiscal risks ahead of the autumn Budget are adding to uncertainty, which may limit sterling's gains for now.