Sterling edges up as Bank of England warns of earlier interest hikes

[LONDON] Sterling rose against both the euro and the dollar after the Bank of England (BoE) urged Britons, in interviews published over the weekend, to get ready for earlier interest rate rises as inflation pressure mounted in Britain.

The bank's governor, Andrew Bailey, said in an interview to The Yorkshire Post newspaper that inflation running above the BoE's target of 2.0 per cent was very concerning and had to be managed to prevent it from becoming permanently embedded.

Bank of England policymaker Michael Saunders said investors were right to bet on faster increases in borrowing costs with consumer price inflation heading above 4 per cent, the Telegraph newspaper said on Saturday.

Interest rate futures traded on the Chicago Mercantile Exchange (CME) showed November contracts were pricing in as much as a 20 per cent probability of a rate hike next month, compared to 12 per cent last week; December futures were pricing in a 45 per cent probability of a rate increase by then.

"Currently strong speculation is building that the BoE will tighten ahead of the Fed," ING analysts said pointing that the bank effectively warned of second round effects from currently high inflation.

Sterling rose 0.2 per cent versus the dollar to US$1.3645 at 0750 GMT (3.50pm Singapore time), after briefly touching a two-week high. Versus the euro, it also rose 0.2 per cent to 84.81 pence, not far from a two-month high touched in earlier morning trade.

The two-year gilt yield touched 0.603 per cent shortly after the market opened, its highest since January 2020, up 7 basis points on the day.

REUTERS