The pound was near to 20-month highs against the euro yesterday and also strengthened against the dollar.
This was due to anticipation of a UK interest rate hike, after Governor of the Bank of England, Andrew Bailey, gave a strong indication at the weekend that a rate rise could occur soon. The money markets are currently pricing in a more than 80% chance of a rate hike in November, up from record lows of 0.1% to 0.25%.
However, in the background is the debate that the Bank of England could make a policy mistake if it hikes rates too early. The markets will be assessing economic conditions closely.
UK inflation data was released this morning, coming in at 3.1% year-on-year and 0.3% month-on-month in September. These figures were slightly lower than expected due to a slowdown in restaurant and hotel costs. However, it’s still predicted that inflation will rise over the coming months and the rate is still way above the Bank of England’s target of 2%.
