The Pound saw fresh highs yesterday after the Bank of England governor Andrew Bailey gave a clear indication that an interest rate hike is coming soon.
The markets jumped onto these comments with some betting on this happening as early as November. Yesterday, the GBP/USD rallied to a 5-week high, but that has now tapered after weaker-than-expected inflation data this morning. The Consumer Price Index (CPI) edged lower to 3.1% in September, from 3.2% in August. This report has taken a bit of the edge away from Sterling this morning by slightly cooling market interest rate expectations.
Over the Pond, US Treasury yields are continuing to rise. The 10-year yield is now at a 4-month high of 1.65%. Normally this would be a benefit to the dollar, but the Federal Reserve has also given a clear indication that they will only start raising interest rates once it has completed tapering its asset purchase programme, so hindering any gains this would normally provide. Traders will be keeping an eye on the release of the Fed’s Beige Book at 7pm tonight. This should provide further clues on their thoughts on price pressures and inflation and in turn focus on the timing of interest rate hikes for the US.
As a result, GBP/USD is still only 0.25% off a 5-week high and GBP/EUR is only 30 pips off the highest levels since the Covid crisis kicked off.
