18 Oct Reuters - The currency touched a 20 month high against the euro on Monday after Bank of England Governor Andrew Bailey sent a fresh signal that the central bank is gearing up to raise interest rates as inflation risks mount.
This year, Sterling gained 5.5% versus the euro, with analysts pointing to expectations that the BoE will raise rates as a main factor supporting the pound, while the British economy struggled with a shortage of labour, an energy crisis and rising COVID- 19 cases.
During an online panel discussion organised by the Group of 30 consultative group on Sunday, Bailey said the BoE will have to act in its monetary policy meetings on the risk of short-term inflation.
On the hope of rate hikes, short-dated British government bond yields jumped to their highest level since May 2019 with the 2 year gilt yield jumping by 16 basis points to reach a high of 0.747%.
Overnight, the Sterling Sterling rose against the EUR to its highest 84.25 since February 2020. By 0835 it lost some steam trading flat at 84.42 pence.
Versus a strengthening dollar, it edged 0.2% lower at $1.3717, but not far from one-month high on Friday.
Sterling was the biggest gainer overnight after Bank of England Gov. Bailey stated flatly that the British central bank is gearing up to raise interest rates, said Marshall Gittler, Head of Investment Research at BDSwiss Holding.
The BoE looks set to be the first central bank to raise interest rates since the beginning of the pandemic in Europe. Investors are betting on a rise to 0.25% in December.
Investors awaiting CPI September inflation data for Britain due on Wednesday.