Pound Slips Amid Rate Hike Bets and Soaring Energy Prices

The British pound weakened against the US dollar, falling to around $1.35 as the dollar strengthened amid growing expectations for further interest rate hikes from the Bank of England.

Rising energy prices and a hawkish inflation outlook contributed to pressure on UK yields. The price of Brent crude climbed above $100 per barrel, while UK natural gas prices reached their highest level since late 2022 due to escalating Middle East tensions and concerns over energy supplies.

Markets are now fully pricing in four Bank of England rate increases by the end of 2027, despite Governor Andrew Bailey cautioning that future decisions will depend on evolving economic and geopolitical developments. Bailey pushed back against views that another hike is inevitable, stressing the need to consider a range of factors.