United Kingdom: Sterling Hits Over One-Month High Following BoE Rate Hike.

Sterling appreciated to $1.347, its strongest level since mid-September, after the Bank of England raised its key interest rate by 25 basis points to 4%, marking its first increase in more than three years. The vote was split 8-1, with Catherine Mann dissenting in favour of a larger 50 bps hike. Governor Andrew Bailey signaled that further rate increases may be necessary unless the Iran war is resolved, which would help ease the inflationary pressures that prompted the latest hike. Markets have since increased their bets on further monetary tightening, with three additional rate increases now fully priced in by November 2027. The BoE also warned that inflation could peak at 4.9% in the second quarter of 2027, while its adverse scenario projects a sharper rise to 6.2% in the third quarter of next year. Meanwhile, the pound remained supported by broad US dollar weakness, with the greenback falling to a one-month low following a sweeping Democratic victory in the US midterm elections.