30.10.202611:24:37UTC+00Pound Gains on Rate Hike Bets

The pound rose above $1.34, its highest level since mid-September, and is up about 1% so far this month, marking its first monthly gain since August. The advance has been supported by the government’s latest budget and mounting expectations of a Bank of England interest rate increase in November.

Chancellor John Healey delivered his first budget on Wednesday. His spending plans broadly aligned with market expectations and contained few surprises. He announced that the government would use part of its fiscal headroom—now reduced to £15 billion from £24 billion—to meet its main fiscal target, while continuing efforts to repair the public finances amid the economic fallout from the Iran conflict.

Money markets are now almost fully pricing in a Bank of England rate hike on November 5, followed by additional increases in February and July. There is also a roughly 50% probability of another hike by December 2027, as inflation remaining above target, rising bond yields, and stronger-than-expected economic data have all strengthened expectations of a tighter monetary policy stance.