Sterling strengthened to $1.347, its highest level since mid-September, after the Bank of England raised its key interest rate by 25 basis points to 4%, the first increase in more than three years. The Monetary Policy Committee voted 8–1, with Catherine Mann dissenting in favor of a larger 50 basis point hike. Governor Andrew Bailey indicated that further rate increases may be required unless the war in Iran is resolved, which would help ease the inflationary pressures that prompted the latest move.
Following the decision, markets increased their expectations for additional monetary tightening, with three more rate hikes now fully priced in by November 2027. The BoE also cautioned that inflation could peak at 4.9% in the second quarter of 2027, while its adverse scenario foresees a sharper rise to 6.2% in the third quarter of next year.
At the same time, the pound found additional support from broad US dollar weakness, as the greenback slipped to a one-month low after a sweeping Democratic victory in the US midterm elections.
