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Sterling Rises as Hot UK Inflation Data Bolsters BOE Rate Hike Bets
The British pound gained ground on Wednesday, lifted by stronger-than-expected UK inflation data and a concurrent softening in the U.S. dollar. Sterling rose 0.07% against the dollar to trade at $1.3392, according to market data from 05:10 ET (09:10 GMT).
Inflation Data Fuels Rate Bets
The primary catalyst for the pound's move was the release of UK inflation figures for September. The data showed headline inflation accelerated to 3.5%, while core services inflation rose to 3.7%. These figures reinforce market expectations that the Bank of England will proceed with an interest rate hike at its upcoming November meeting to combat persistent price pressures.
However, analysts noted that the pound's strength was not solely a domestic story. "While the headline September inflation acceleration...reinforce expectations for a November Bank of England hike, analysts stress the pound’s strength is heavily propelled by external dollar weakness rather than pure domestic momentum," Investing.com reported.
AdBroader Market Dynamics
The U.S. dollar traded with a soft undertone against a basket of currencies, providing a tailwind for sterling. Francesco Pesole, an FX strategist at ING, attributed the dollar's weakness to a combination of factors, including the unwinding of "stretched longs and short-term overvaluations" and the impact of lower oil prices.
Meanwhile, the euro slipped 0.19% to $1.1215, weighed down by political concerns in France ahead of a credit rating review from Moody's on Friday. This was reflected in the widening of the spread between French and German 10-year government bonds to 157 basis points. On the monetary policy front in the U.S., Federal Reserve Governor Christopher Waller maintained a hawkish stance, signaling openness to further tightening, while Vice Chair Michelle Bowman held a neutral posture.
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