The pound hovered just below $1.34, close to its strongest level since June 16, and hit a new one-year high against the euro as investors intensified bets on further Bank of England interest rate increases. The move was driven by rising oil prices—with crude trading above $72 per barrel following attacks in the Strait of Hormuz—and mounting inflation concerns. Markets are now pricing in a 76% probability of a rate hike by year-end and better than 50% odds of a move in November.
Bank of England Governor Andrew Bailey has reiterated that inflation is still expected to return to the 2% target, albeit later than previously anticipated, and has ruled out any imminent rate cuts. On the political front, Andy Burnham, seen as the leading contender to succeed Keir Starmer as prime minister, has yet to appoint a finance minister, though former energy minister Ed Miliband is widely viewed as the frontrunner for the role. Sterling’s resilience in the face of recent political turbulence suggests that much of the negative news has already been absorbed by the market.
