Sterling drifts as BoE rate decision comes into focus
TLT•Sterling was broadly steady against the dollar and euro as investors focused on an expected Bank of England rate hike on Thursday. Money markets were pricing in four 25-basis-point hikes by next September, while ING said that pricing looked extreme.
1. Sterling little changed
Sterling was last slightly higher against the dollar at $1.3417 and dipped to 83.53 pence against the euro on Monday. A roughly 4.5% drop in oil prices lifted risk appetite in currency markets and weighed on the dollar, while Brent remained at $108.37 a barrel.
2. Rate decision in focus
The Bank of England is expected to raise rates on Thursday, its first hike since August 2023. Policymakers have said the likelihood of a hike grows the longer energy prices stay elevated; ING expects inflation to rise above 4% early next year from 3.5% currently and said a further hike in February was likely.
3. Markets price further hikes
Money markets were fully pricing in four 25-basis-point rate hikes by next September. ING said market pricing for BoE hikes looked extreme. The pound and gilts had not reacted strongly to finance minister John Healey's budget last week.
