Pound Hits Highest Level Since Late August, Bolstered by BoE Outlook

The pound sterling strengthened to its highest level since August 29 during Thursday's trading (Sept 10), supported by growing expectations that the Bank of England (BoE) will raise interest rates in the coming months. The GBP/USD pair rose approximately 0.07% to 1.3554, while EUR/USD also gained 0.08% to reach 1.1639.

Sterling's gains occurred despite Brent crude prices climbing above US$100 per barrel due to escalating conflict in the Middle East. This situation places pressure on the UK economy—which relies heavily on energy imports—and heightens inflation risks.

Markets currently anticipate at least two BoE rate hikes by March of next year, with a roughly 40% probability of a third increase. These expectations are more aggressive than projections for the Federal Reserve, which is currently expected to implement two hikes over the same period.

Support for the pound also stems from UK inflation rising to 2.9% in July, up from 2.6% previously. However, BoE Governor Andrew Bailey has cautioned that further rate hikes are not guaranteed, citing high energy prices and fiscal risks ahead of the Autumn Budget.

Meanwhile, the dollar remains range-bound following the US Treasury's announcement of a US$6 billion long-term bond buyback. Markets are now awaiting US PPI and CPI data to determine the direction of the Dollar Index (DXY). If inflation does not decline significantly, the DXY could potentially retest the 99 level.

Newsmaker Analysis: The pound continues to draw support from expectations of a more hawkish BoE policy stance compared to the Fed. However, rising oil prices pose a major risk, as they could exacerbate inflation while dampening UK economic growth. In the short term, the trajectory of GBP/USD will hinge largely on US inflation data and the extent to which the BoE signals further monetary tightening. (arl)

Source: Newsmaker.id