Sterling Holds at One-Month High
The pound held at $1.34, its highest level in more than a month, as rising borrowing costs across the eurozone triggered outflows from regional assets, supporting demand for UK bonds and the currency. Sterling also drew support from stronger-than-expected UK inflation data, with annual inflation rising to 3.5% in September, its highest level since October 2025 and above forecasts of 3.4%. Core and services inflation also exceeded expectations, prompting markets to increase bets on further monetary tightening. Money markets priced in at least three quarter-point rate hikes by April 2027, with the first potentially coming as early as November 5. Meanwhile, concerns over elevated oil prices, the cost of AI infrastructure investment and mounting debt burdens in highly indebted countries such as France weighed on risk appetite. Investors also looked ahead to next week’s budget, where Chancellor John Healey is expected to emphasize fiscal discipline, potentially bolstering demand for gilts.
The pound held at $1.34, its highest level in more than a month, as rising borrowing costs across the eurozone triggered outflows from regional assets, supporting demand for UK bonds and the currency. Sterling also drew support from stronger-than-expected UK inflation data, with annual inflation rising to 3.5% in September, its highest level since October 2025 and above forecasts of 3.4%. Core and services inflation also exceeded expectations, prompting markets to increase bets on further monetary tightening. Money markets priced in at least three quarter-point rate hikes by April 2027, with the first potentially coming as early as November 5.
Meanwhile, concerns over elevated oil prices, the cost of AI infrastructure investment and mounting debt burdens in highly indebted countries such as France weighed on risk appetite. Investors also looked ahead to next week’s budget, where Chancellor John Healey is expected to emphasize fiscal discipline, potentially bolstering demand for gilts.