Pound Gains on Energy Inflation Risks as Gas Prices Soar

The British Pound is gaining strength against the US Dollar due to rising energy-driven inflation risks in Europe, according to MUFG. The bank notes that UK natural gas futures have surged by 62.5% since the start of July, reaching its highest level since January 2023.

This increase in natural gas prices may push the Bank of England (BoE) to raise interest rates again, which could support the Pound. The BoE has been using natural gas futures prices in its inflation forecasts, and recent data suggests that energy-related inflation risks have worsened.

Catherine Mann, a hawkish member of the Monetary Policy Committee (MPC), may highlight these risks to justify another rate hike. While the MPC's patience is not as urgent as the European Central Bank's (ECB), a BoE hike by year-end is becoming more likely due to the natural gas price backdrop.