Pound Hits Four-Month High as Market Prices in Rate Hike

The British Pound is performing well against the US dollar, reaching its highest level in over four months. The GBP/USD pair has been rising steadily, and currently sits near a four-month high of around 1.3650.

This increase can be attributed to several factors, including three days of positive data from the UK economy. However, it's worth noting that the acceleration is largely due to an administered price hike in household energy bills, which has increased by 13% at the start of July and will rise again in October.

The Bank of England had already predicted that inflation would peak near 3.2% in the fourth quarter, so this increase was not unexpected. In fact, the Monetary Policy Committee held its interest rate steady at 3.75% on July 30, with three members voting for a hike. The market is currently pricing in a 30% chance of an interest rate increase before the end of the year.

The Dollar, on the other hand, has been performing poorly against major currencies, including the Pound. This week's Treasury operation at the long end pulled yields down, and two Federal Reserve policymakers spoke, one reading neutral and the other hawkish. The Dollar was sold into all of this, sitting near multi-month lows.