Pound stays above 1.3400 as UK inflation surprise lifts BoE hike bets
GBP/USD trades near 1.3405 after UK September CPI came in hotter than forecast, reinforcing expectations the Bank of England will raise rates next month.
The Office for National Statistics reported on Wednesday that UK headline CPI rose 3.5% year-on-year in September, up from 3.1% in August and above the 3.4% expected, marking an 11-month high driven largely by higher petrol and diesel prices. Core CPI also accelerated, reaching 2.8% from 2.6% the prior month and beating the 2.7% consensus.
Money markets now assign a 98% probability that the BoE will lift its benchmark rate by 25 basis points to 4.0% at its November 5 meeting, based on LSEG pricing. That would mark the central bank’s first increase since 2023. Many traders also expect a follow-up hike of the same size in December.
Bank of England policymaker Megan Greene has pointed to stalled progress on wage disinflation, warning that pay growth running near 3.5% remains inconsistent with the 2% inflation target and that the risk of second-round price effects is larger than previously assumed.
Across the Atlantic, newly appointed Federal Reserve Chair Kevin Warsh gave no clear signal on the timing of the next US rate move. A Reuters poll of economists points to the Federal Reserve holding rates steady in October before resuming hikes in December. UK Retail Sales data is due for release later Friday.
Sustained hawkish signals from the Bank of England tend to support the pound by widening the UK’s interest-rate advantage over other major economies, a dynamic that matters for GBP/USD, EUR/GBP and broader sterling positioning as traders price in the path for UK borrowing costs.
Source: FXStreet