Pound treads water as dollar holds firm
EWU•Sterling was flat at $1.324 on Monday as investors awaited Bank of England commentary and watched for US inflation data. Markets priced in roughly a 90% chance of a BoE rate hike on November 5, while economists surveyed expected no UK rate change until later in 2027.
1. Sterling holds steady
The pound was last flat at $1.324 against the dollar and strengthened 0.14% against the euro, which fell to 84.49 pence, matching last week's 16-month trough. Sterling has been range-bound in recent weeks as investors weigh uncertainty ahead of the UK Budget and dollar strength.
2. Rate expectations diverge
Money markets showed traders assigning roughly a 90% chance of a BoE rate increase at its November 5 meeting and expecting a series of hikes during 2027 that would bring the base rate to 4.75% in a year's time, from 3.75% now. Economists surveyed expected no UK interest-rate change until later in 2027, with the next move likely to be a cut.
3. Officials due to speak
Several BoE officials were scheduled to speak this week, including Governor Andrew Bailey at the IMF and World Bank annual meetings in Bangkok. US consumer price data due later in the week could influence expectations for year-end US interest rates and other central banks.
