Pound Surges as BoE Rate Hike Bets Build Amid Ongoing Tensions

The Pound-to-Euro exchange rate rose on Tuesday as traders increased their bets on the Bank of England raising interest rates later this year.

Oil prices surged following fresh attacks involving the US and Iran, prompting markets to reassess the inflation outlook. This led to higher UK government bond yields, with markets pricing in around 32 basis points of BoE tightening by the end of the year.

A November rate hike was seen as almost 70% likely, while the chances of another increase by February were put at roughly 80%. The prospect of tighter monetary policy lent Sterling some strength, but gains were limited due to concerns over rising government borrowing costs and potential consequences for the UK economy.