Sterling Tops $1.33 as BoE’s Hawkish Hold Reshapes Rate Outlook

The British pound rose above $1.33 after the Bank of England unanimously held rates at 3.75%, adopting a more hawkish tone than anticipated. Markets had expected a 7-2 vote for steady rates, but policymakers warned that the Middle East conflict’s impact on soaring energy and commodity prices could push near-term inflation higher, reversing recent disinflation in domestic prices and wages. Traders now fully price in two BoE rate hikes this year, as European gas prices surged following attacks on Qatar’s LNG facilities and Brent crude hit $117/barrel, amplifying UK inflation risks. On the economic front, the latest UK jobs report showed slowing wage growth and unemployment holding at 5.2%, both missing forecasts.

The British pound held near $1.327 on Thursday as investors balanced escalating energy costs against weaker-than-expected UK wage growth, just hours before the Bank of England’s interest rate decision. European natural gas prices spiked 25% after attacks on critical LNG facilities in Qatar, while Brent crude surged to $117/barrel, heightening inflation risks for the UK economy. Markets now anticipate a more hawkish stance from the BoE, though the central bank is widely expected to hold rates today. Looking ahead, traders are pricing in about 32 basis points of tightening by year-end, equivalent to more than a quarter-point hike, with more than a 50% chance of a June rate increase and a full hike priced in by September. Meanwhile, the latest UK jobs report revealed slowing wage growth and unemployment steady at 5.2%, both below expectations.

The British pound fell to $1.33 as investors turned to the dollar for safety, spurred by escalating Middle East conflicts and stronger-than-anticipated US PPI data ahead of critical central bank decisions. On Wednesday, Israel’s strikes on Iran’s Asaluyeh refinery and the South Pars gas field, coupled with evacuation warnings from Iran’s Revolutionary Guard for oil sites in Saudi Arabia, the UAE, and Qatar, intensified geopolitical uncertainty. Compounding the pressure, US producer prices soared 0.7% in February, more than double the 0.3% forecast, while the annual rate reached a one-year peak of 3.4%. Attention now shifts to the Bank of England and Federal Reserve meetings, where rates are widely expected to remain unchanged. For the UK, analysts will closely watch the Monetary Policy Committee’s vote split, with a 7-2 or 6-3 decision to hold rates seen as the most probable outcome.