Pound gains against dollar, euro as inflation data cements future rate hike bets
TLT•The pound rose against the dollar and euro after UK annual inflation climbed to 3.5% in September, strengthening expectations of a Bank of England rate hike in November. Traders are nearly fully pricing in a 25-basis-point increase.
1. Inflation lifts rate bets
Sterling rose 0.1% to $1.339 and gained 0.2% against the euro, extending its advance against the common currency to a fifth session. UK consumer price inflation rose to 3.5% in September from 3.1% in August, above economists’ 3.4% forecast.
2. November hike priced in
Money markets showed traders were nearly fully pricing in a 25-basis-point Bank of England rate hike in November, with expectations for four increases by the middle of next year. Economists at Pantheon Macroeconomics said they expected another hike in February and were close to adding a third in May or earlier.
3. Budget in focus
The pound has gained close to 2% against the euro this month, on pace for its best monthly showing since May 2023, and almost 1% against the dollar. Investors will next focus on finance minister John Healey’s first budget, due next week.
