Sterling climbed to $1.335, its highest level in nearly a month, after stronger-than-expected UK labor market data bolstered expectations of a Bank of England (BoE) rate hike next month. The unemployment rate unexpectedly fell to 4.7% in the three months to August, its lowest level since July 2025, while regular wage growth accelerated to 3.7%, slightly above the market consensus of 3.6%.
These figures came on the heels of a series of upside data surprises last week, which showed the UK economy expanding by 0.1% in August and the trade deficit narrowing unexpectedly. Together, the releases reinforced signs that economic activity is proving more resilient than previously anticipated.
Investors now expect the BoE to raise the Bank Rate to 4% at its November 5 meeting. The central bank remains the only major monetary authority yet to begin a policy-tightening cycle, but recent comments from Governor Andrew Bailey — warning that the longer the war continues, the harder it will be for policymakers to refrain from acting — suggest that a rate increase may be drawing closer.
