Sterling Surges as BoE Rate Hike Bets Build

The British pound strengthened on Thursday to its highest level since August 29, despite rising oil prices and escalating Middle East tensions. Sterling rose 0.07% to 1.3554, while the euro was up 0.08% at 1.1639.

The main driver behind sterling's rise is a reassessment of the Bank of England's monetary policy outlook. Markets are now pricing in at least two rate hikes by March next year, with a 40% probability of a third. In contrast, investors expect only two Federal Reserve rate hikes over the same period.

The Bank of England's Governor Andrew Bailey has stressed that further monetary tightening is not guaranteed, and that elevated oil prices and fiscal risks ahead of the autumn Budget are adding to uncertainty.