Pound Rises as Oil Shock Lifts Expectations of Bank of England Tightening

The British pound rose against the euro and the U.S. dollar as markets increased expectations that the Bank of England could raise interest rates due to higher oil prices. According to Jin10, the move followed renewed escalation in U.S.-Iran tensions, which pushed up expectations that rising oil prices could prompt the Bank of England to hike rates. Sterling climbed to a one-year high versus the euro and a three-week high versus the U.S. dollar. Monex Europe analysts said in a report that the oil price shock was reinforcing the outlook for the Bank of England to tighten policy. They added that the United Kingdom’s inflation problem remained more stubborn than that of the United States or the euro area. The report also said recent political concerns in the United Kingdom had eased, and that the International Monetary Fund had raised its outlook for U.K. economic growth, which also supported the pound.