Pound Holds Steady as Oil Prices Surge Above $100

The pound is holding steady around $1.3545 despite Brent crude rising above $100 a barrel, as investors weigh the impact of higher oil prices on inflation and interest rates.

For the UK, pricier oil is a concern as it drives up fuel and shipping costs, which can push up inflation even further, squeezing households and businesses. However, in currency markets, the focus is on whether this inflation pressure will force the Bank of England to keep interest rates higher for longer than its US counterpart.

Money markets are pricing in at least two quarter-point hikes by next March, with some chance of a third, which widens the gap between short-term UK and US interest rates. This makes holding pounds more attractive, but this support is fragile as Bank of England Governor Andrew Bailey has cautioned against more hikes being 'inevitable'. ING, a Dutch bank, also argues that markets may be overestimating how far UK rates can rise given oil-price uncertainty and looming fiscal decisions like the Autumn Budget.