Pound rises against dollar and euro as UK inflation firms rate-hike bets
UK inflation rose to 3.5%, above forecasts, solidifying expectations of a Bank of England rate hike in November. Sterling hits a 17-month high versus the euro.
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what happened
Sterling gained against the dollar and the euro on Wednesday after UK inflation came in hotter than expected. The Office for National Statistics said consumer prices rose 3.5% over the year, up from 3.1% in August, while economists polled by Reuters had expected 3.4%.
The pound was last up 0.1% at $1.339 and rose 0.2% against the euro, reaching its strongest level in 17 months. Money market data show traders are nearly fully pricing a 25-basis-point hike in November, and LSEG-compiled data point to around four hikes by the middle of next year.
Attention now turns to finance minister John Healey's first budget, due next week. The euro remains under pressure amid anti-government protests in France and a worsening fiscal outlook there.
why it matters
Higher inflation and expectations of tighter Bank of England policy support sterling and push up UK government bond yields. Markets will watch the budget closely; if it does little to build confidence in fiscal policy, pressure on the currency and gilts could grow.
market impact
GBP and gilts: BoE hike expectations support sterling and yields, while the euro weakens
tags
instruments
sources
- Pound gains against dollar, euro as inflation data cements future rate hike bets — Reuters, 21 October 2026 at 09:43 UTC
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