Pound Sterling Gains Amid Expectations of BoE Rate Hikes

The Pound Sterling has strengthened to a two-week high against the US Dollar on Wednesday (9/9), despite crude oil prices breaching $100 a barrel. The British currency is benefiting from expectations of Bank of England rate hikes, with markets pricing in at least two increases through March next year.

According to Reuters, crude oil prices are now around 40% higher than before the war began in late February, while European natural gas prices have risen threefold. This has put pressure on central banks to raise interest rates, particularly in countries dependent on energy imports like the UK.

The UK's inflation rate rose to 2.9% in July from 2.6% in June, which was the lowest level in 15 months. However, economists and analysts hold views that differ from those priced into the market, with BoE Governor Andrew Bailey rejecting the notion that a rate hike is a certainty.

ING strategists warned that rising energy prices could still affect the UK interest rate outlook, stating that every $10 increase in Brent prices since the Iran war began had pushed two-year interest rates up by around 15 basis points.