GBP to USD: Pound climbs as investors scale back rate-hike bets

Pound Sterling (GBP) edged higher against the dollar on Monday as a sharp ​drop in oil prices eased worries about energy-driven inflation and tempered expectations for further ‌Bank of England tightening ahead of this week’s policy meeting.

The pound rose 0.07% to $1.3330 by 1010 GMT, recovering for a second straight session from Thursday’s three-week lows.

Brent crude prices plunged 9% to $87.84 a barrel after the U.S. and Iran paused strikes over ​the weekend, boosting hopes of de-escalation. The flare-up in hostilities had last week briefly pushed ​oil prices above $100 a barrel, stoking concerns about its impact on inflation.

Two-year gilt yields – ⁠which are more sensitive to the near-term outlook for interest rates than other maturities – fell 6 bps ​to 4.362%, a steeper decline than that seen in equivalent U.S. and German government bonds.

The BoE is widely ​expected to leave rates unchanged at 3.75% on Thursday after inflation came in below the central bank’s forecasts in June.

However, economists and markets remain divided over the longer-term outlook, with higher energy prices threatening to complicate the inflation picture. Money ​markets are pricing in roughly an even chance of a September rate hike.

“If inflation is still expected ​to remain contained, we believe the BoE will leave rates unchanged for the rest of the year,” wrote ING FX ‌strategist Francesco ⁠Pesole, adding that a dovish repricing remains “the clearest near-term risk for sterling.”

Against the euro, sterling strengthened 0.2% to 84.55 pence , extending its recovery from a more than one-year low of 84.5 pence touched on July 15.

“Our short-term valuation models still suggest the pair is cheap at these levels,” Pesole said.

Dollar, Pound and Other Currency Rates Today in Pakistan

NEW GOVERNMENT, NEW RULES?

Investors ​are also assessing the ​fiscal outlook under Britain’s ⁠new government after Prime Minister Andy Burnham and finance minister John Healey took office last week.

Burnham’s administration intends to preserve the previous administration’s pro-growth approach to the ​financial services sector including regulation, a person familiar with the matter told Reuters on ​Friday.

Healey has retained ⁠several Treasury ministers who served under his predecessor Rachel Reeves, a signal of continuity of purpose on financial services, the person said.

Positioning data also pointed to improving sentiment toward the currency. Speculators reduced net bearish bets on ⁠sterling ​for a fourth straight week ahead of Burnham’s move into Downing ​Street.

Net short sterling positions fell to $4.64 billion in the week ended July 20 from $5.96 billion a week earlier, according to data from ​the U.S. Commodity Futures Trading Commission.