GBP/USD Hits Two-Week High as Markets Reassess Bank of England Stance

4:03 AM ETDeveloping

Business Desk

In Short: GBP/USD has risen to its highest level in two weeks, driven by a reassessment of the Bank of England’s monetary policy outlook.

The pound sterling (GBP) has seen a significant rise against the US dollar (USD), reaching its highest level in two weeks, according to reports from financial platforms Action Forex and FXStreet. Investors are now pricing in at least two interest rate hikes by March next year, with a 40% probability of a third increase, despite the Bank of England not expecting a rate hike at its next meeting.

The Bank of England is actively trying to manage market expectations, which have become increasingly aggressive. The main driver of this support for sterling is a reassessment of the Bank’s monetary policy outlook, as highlighted by the pound’s approach to key resistance levels around 1.3566–1.3572. The pound rose to 1.3552 on Thursday, its highest level since August 29.

In a recent statement to MPs, Bank of England governor Andrew Bailey warned that inflationary pressures are still impacting the UK economy. He stated that energy prices could rise further if the conflict in Iran continues, reflecting fears of higher inflation globally. Bailey also noted that high youth unemployment rates are concerning, but a slowdown in the jobs market could help mitigate price pressures.

Bailey emphasized that there is no secret plan to hike rates in the coming months, and the Monetary Policy Committee’s decisions will be based on data. He acknowledged that inflation could spike if oil prices remain around $100 per barrel for several months, as warned in the Bank’s last report from the summer. However, he insisted that the Bank’s approach remains data-driven.

Despite the rise in oil prices above $100 per barrel and further escalation in Middle East tensions, the pound has strengthened. This suggests that market participants are reassessing the Bank of England’s stance and are more optimistic about future interest rate hikes.

What's confirmed

Investors do not expect the Bank to raise interest rates at its next meeting, but markets are pricing in at least two rate hikes by March next year, with about a 40% probability of a third increase.
However, the Bank of England is seeking to temper increasingly aggressive market expectations.
From a technical perspective, GBP/USD is approaching key resistance around 1.3566–1.3572.
GBP/USD rose to 1.3552 on Thursday, reaching its highest level since 29 August.
The main source of support for sterling remains a reassessment of the Bank of England’s monetary policy outlook.

What's still developing

Nothing material beyond the confirmed record.

Sources

Action Forexlink