Pound Rebounds as BoE Rate Hike Expectations Firmed Up

The British pound has shown signs of improvement after oil and gas prices increased in the UK, coupled with stronger indications from the Bank of England (BoE) that they may raise interest rates sooner rather than later.

According to financial markets, there is now an 85% chance that the BoE will increase its base rate to 4% by November, up from earlier predictions. This shift in expectations has led to a modest gain for sterling against both the US dollar and euro, despite a rough September for the pound.

Comments from Governor Andrew Bailey and Deputy Governor Dave Ramsden have added weight to this view, suggesting that the BoE is more willing to lift rates after holding back while other major central banks took action earlier. This has led money markets to imply not just a likely November hike but also a series of further moves through mid-next year.

With an 85% probability of a November rate hike now priced in, the 'front end' of the UK yield curve, which reflects near-term policy, is driving day-to-day movements in GBP against the dollar and euro. However, it's essential to note that this support can fade if the story stops evolving or if energy prices cool or UK growth data weakens.