Pound Rallies as BoE Rate Hike Bets Grow Amid Inflation Concerns

The pound has rebounded from multi-month lows after investors increased expectations that the Bank of England could raise interest rates in response to renewed inflation pressures linked to energy prices.

Comments from senior BoE officials pointed to growing concerns about the impact of higher energy costs on inflation, with markets now pricing in an 85% probability of a quarter-point rate increase at the November meeting. This would bring the UK interest rate to 4%, and markets are also pricing in four additional increases by the middle of next year.

The rebound came despite the pound remaining on track for a monthly decline of more than 2% due to the dollar's strengthening on expectations of tighter policy from the Federal Reserve. Energy prices have increased, with oil rising over 3% and benchmark British natural gas prices increasing by a similar amount after U.S. President Donald Trump rejected an Iranian proposal linked to reopening the Strait of Hormuz.