Sterling 'hammered' by Dollar strength, markets price in almost 80% chance of November BoE hike

Sterling was hammered against the US dollar last week, though the GBP/USD pair has found a bid above the 1.32 level, which appears to be a critical near-term support level. The pound continues to trade within a relatively narrow range against the euro, however, suggesting that the move has been driven largely by broad dollar strength rather than any underlying weakness in sterling itself.

Markets, meanwhile, appear increasingly confident that the Bank of England will raise rates this year - and that they may well do so as soon as the next meeting in November. Following some hawkish comments from MPC member Lombardelli last week - which indicated that policy tightening was becoming increasingly likely - swaps now price in almost an 80% chance of a November hike.

Britain’s economy also remains remarkably resilient, despite clear downside risks.

The UK economy expanded by a robust 0.5% in the second quarter of the year according to this morning’s better-thanexpected revised GDP figures.

Whether this period of resilience continues to another question. We are not overly optimistic and we expect higher energy prices, rising inflation, a cooling labour market and rising interest rates to eat into consumer spending and growth in the coming months.

Critical, of course, will be the details of next month’s Autumn Budget, particularly with further tax and borrowing increases seemingly on the way.