Sterling Gains as Markets Price Further BoE Rate Hikes

The British pound has gained strength against the US dollar as investors anticipate further interest rate hikes from the Bank of England. Sterling rose to $1.354, a level not seen since renewed concerns about inflation have led to expectations of more BoE rate increases.

Brent crude oil briefly touched $100 a barrel, and UK natural gas prices reached their highest point since late 2022 due to rising tensions in the Middle East, which has heightened worries over energy supplies.

Markets are now fully pricing in a 25-basis-point BoE rate increase by December, followed by two further hikes in 2027. However, for the September 17 meeting, policymakers are widely expected to leave interest rates unchanged.

In response to growing inflation concerns, Bank of England Governor Andrew Bailey emphasized that future decisions would depend on evolving economic and geopolitical developments, pushing back against the notion that another rate increase is inevitable.