Pound Falls as Market Shifts Rate Hike Expectations to 2027

The British pound has declined below $1.36, retreating from its six-month high reached last week.

This move comes as Brent crude prices have eased inflation concerns and shifted market expectations for the next Bank of England rate hike to 2027 from late 2026.

LSEG data shows around 24 bps of tightening priced in by December and 36 bps by February 2027, while less than 4 bps is priced in for the BoE's September meeting, implying a roughly 15% chance of a hike.

The market had previously priced a rate hike amid concerns over a potential escalation in the US-Iran conflict, but most economists now expect rates to remain at 3.75% this year.