Sterling rose against both the euro and the dollar after the Bank of England urged Britons, in interviews published over the weekend, to get ready for earlier interest rate rises as inflation pressure mounted in Britain.
The bank’s governor, Andrew Bailey, said in an interview to The Yorkshire Post newspaper that inflation running above the BoE’s target of 2.0% was very concerning and it had to be managed to prevent it from becoming permanently embedded.
Bank of England policymaker Michael Saunders said investors were right to bet on faster increases in borrowing costs with consumer price inflation heading above 4%, the Telegraph newspaper said on Saturday.
Interest rate futures traded on the CME showed November contracts were pricing in as much as a 20% probability of a rate hike next month compared to 12% last week while December futures were pricing in a 45% probability of a rate increase by then.
“Currently strong speculation is building that the BoE will tighten ahead of the Fed,” ING analysts said pointing that the bank effectively warned of second round effects from currently high inflation.
Sterling rose 0.2% versus the dollar to $1.3645 GBP=D3 at 0750 GMT, after briefly touching a two-week high. Versus the euro, it also rose 0.2% to 84.81 pence, not far from a two-month high touched in earlier morning trade. EURGBP=D3
The 2-year gilt yield GB2YT=RR touched 0.603% shortly after the market opened, its highest since January 2020, up 7 basis points on the day.
Click here to view chart..GBP index – ARIA PAZZO