Pound Climbs as Oil Price Drop Eases Inflation Concerns

The British pound strengthened against both the US dollar and euro on Monday after crude prices plummeted nearly 9%, easing concerns about energy-driven inflation. The Brent crude price dropped to $87.84 a barrel, down from its recent high above $100, following a pause in hostilities between the U.S. and Iran over the weekend.

This sharp decline in oil prices led investors to scale back expectations for further Bank of England rate hikes, as inflation remains contained. The BoE is widely expected to leave interest rates unchanged at 3.75% on Thursday, following June's below-forecast inflation reading.

Two-year gilt yields fell by 6 basis points to 4.362%, a steeper decline than seen in equivalent U.S. and German government bonds. Money markets are pricing in roughly an even chance of a September rate hike, but economists remain divided over the longer-term outlook.