Pound Rebounds as Investors Bet on BoE Rate Hike

The British pound rebounded from its lowest level in three months against both the US dollar and euro on Monday, as investors bet that the Bank of England will tighten monetary policy to combat rising inflation.

The pound was up 0.1% against the dollar at $1.3259, after hitting a low of $1.3204 last week. Against the euro, it rose by 0.2% to 85.75 pence.

Investors are pricing in tighter policy from the BoE next month, with money market futures showing an 85% chance of a quarter-point interest rate hike to 4%. By the middle of next year, four hikes are priced in.

The Bank's Governor Andrew Bailey said persistently high energy prices would make it harder for the central bank to leave interest rates on hold. Deputy Governor Dave Ramsden also hinted at a possible rate increase if upside inflation pressures continue building.