Sterling Hits Two-Week High as BoE Governor Denies 'Secret Plan' for Rate Hikes
nashnova research
Sterling rose to a two-week high of $1.3545, but BoE Governor Andrew Bailey told parliament there is no 'secret plan' for rate hikes — clashing with market pricing that bets on at least two increases by March, and leaving the pound at a directional crossroads.
Why is sterling at a two-week high?
The pound hit $1.3545 on Wednesday, the highest since August 28.
Year-to-date, sterling is up about 0.5% against the dollar; the euro is down 1%, the yen down 2%.
This means → sterling is the relative G10 winner this year, driven mainly by bets that the BoE will hike.
What did Bailey say, and why does it matter?
Governor Bailey told MPs: "I want to dispel the impression that we really have a secret plan."
Rate futures show traders pricing at least two hikes by March, with a roughly 40% chance of a third.
In plain terms = the market has already scripted the BoE's hiking path, but the governor himself says "we don't have that script" — the two sides don't match.
How are inflation and oil complicating things?
UK July CPI rose to 2.9% year-on-year, up from 2.6% in June — inflation is still accelerating.
The pressure source: Brent crude is up about 40% since the Iran war began; European natural gas has roughly tripled.
This reflects a key point — UK inflation is not purely a demand story; energy costs are a fuse that keeps burning.
Why is the UK rate market especially sensitive to oil?
ING strategist Michiel Tukker notes: every $10 rise in Brent pushes UK 2-year rates up about 15 basis points.
The same shock moves eurozone rates by 11 bps and US rates by 8 bps — the UK is the most exposed.
This means → if oil retests $100/barrel, UK rate-hike expectations get pushed even higher. Sterling's "good news" and "bad news" may come from the same variable.
What comes next?
The BoE meets next week; markets widely expect no hike this time, but the statement's wording will be the key signal.
ING is staying on the sidelines, citing oil-price uncertainty and fiscal risk from October's autumn budget.
In plain terms = sterling's near-term direction hinges on two things: whether the BoE statement leans hawkish or dovish, and whether oil stabilises. Until those answers land, the smart money is watching from the side.
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