Sterling Rallies as BoE Investors Priced In Tighter Policy
The pound has rebounded against both the dollar and euro as investors anticipate tighter monetary policy from the Bank of England, according to Reuters.
This comes as inflation pressures build due to rising oil prices. The price of oil surged more than 3% on Monday, while British natural gas prices also rose by a similar amount after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and end the war in the Middle East.
Bank of England Governor Andrew Bailey said that persistently high energy prices would make it harder for the central bank to leave interest rates on hold. Deputy Governor Dave Ramsden stated that if upside inflation pressures continue building, there could be a case for increasing interest rates.
Money market futures are pricing in an 85% chance of a quarter percentage point interest rate hike at the November meeting to 4%, with four hikes priced in by the middle of next year. This has led some analysts to believe that a rate hike could provide near-term support for sterling, especially if accompanied by stabilisation in UK rates.