Pound Rebounds Amid BoE Tightening Expectations

The pound has rebounded from multi-month lows against both the dollar and the euro on Monday as investors price in tighter monetary policy from the Bank of England amid rising inflation pressures.

London-based Reuters reported that sterling was last up 0.1% against the dollar at $1.3259, rising from a three-month low of $1.3204 hit last week, and was still on track for a fall of over 2% this month as the dollar has rallied sharply.

Rising energy prices have increased inflation pressures, making it more likely that the Bank of England will tighten monetary policy and raise interest rates. BoE Governor Andrew Bailey said on Friday that persistently high energy prices would make it harder for the central bank to leave interest rates on hold.

Money market futures are pricing in an 85% chance of a quarter-point rate hike at the November meeting, with four hikes expected by mid-next year. Analysts believe this could provide near-term support for sterling, especially if accompanied by stabilisation in UK rates.