Sterling rebounds against dollar, euro on bets for tighter BoE policy
TLT•Sterling rose 0.1% against the dollar to $1.3259 and 0.2% against the euro to 85.75 pence as markets priced in tighter Bank of England policy. Money markets priced an 85% chance of a quarter-point rate hike in November, to 4%.
1. Rate hike bets lift sterling
The pound rebounded from multi-month lows against the dollar and euro as investors priced in tighter monetary policy from the Bank of England amid rising inflation pressures. It remained on track to fall more than 2% against the dollar in September, which had strengthened on expectations of tighter Federal Reserve policy.
2. Energy prices and policy outlook
BoE Governor Andrew Bailey said persistently high energy prices would make it harder to keep interest rates unchanged. Deputy Governor Dave Ramsden said continued upside inflation pressures could make a rate increase appropriate. Money markets priced in four rate hikes by the middle of next year.
3. Budget and housing measures
Attention is turning to Britain’s Autumn Budget on October 28. The government said a new equity loan scheme for homebuyers, called “Your First Home,” would be confirmed in next month’s budget; British homebuilder shares rallied on Monday.
