Sterling Rises to Seven-Week High Ahead of Thursday’s Bank of England Decision

Key Facts

Sterling rose during Wednesday’s session to its highest level since September 16, as the dollar weakened and geopolitical tensions eased, according to the description in a report published in the FXStreet feed. The move came ahead of the Bank of England meeting scheduled for November 5, with the current Bank Rate at 3.75%. The pound-dollar pair closed at 1.34137 on November 3, according to EL7 data, the close on the day before the session in which the high was reached. The available evidence does not provide a verified figure for the pair’s intraday level during Wednesday’s session. In Britain, the latest Decision Maker Panel data showed companies’ one-year consumer price inflation expectations rising, while their three-year inflation expectations and expected wage growth remained steady.

British companies’ one-year consumer price inflation expectations rose to 3.3% on average in the three months to October, from 3.1% in the three months to September, according to a Bank of England survey. Three-year inflation expectations held at 2.8% in the three months to October. Expected wage growth for the coming year also remained at 3.4% over the same period. Actual wages, however, recorded annual growth of 3.9%, down 0.1 percentage points from the three months to September. The survey also showed that 68% of companies expected to raise their prices in October, up 11 percentage points from September, while 71% expected their profit margins to fall. The survey was conducted between October 2 and 16 and received 1,945 responses; the next survey results are due on December 4.

The indicators come ahead of the Monetary Policy Committee meeting on November 5, when the Bank of England will publish its meeting summary, minutes and Monetary Policy Report. In the Market Participants Survey published in September, the median expectation for the interest rate after the November meeting was 3.75%, the current level, while the upper quartile of expectations was 3.81%, based on 92 responses. The committee kept the interest rate at 3.75% at its September meeting by a 6-3 majority. The three dissenting members voted to raise the rate by 0.25 percentage points to 4%. The September minutes said the protracted conflict in the Middle East and its impact on energy prices and the British economy remained the main source of uncertainty around the inflation outlook. The bank said the Monetary Policy Committee’s objective was to return inflation to 2% or keep it there over time.

Company data linked part of the discussion about prices to expectations for increases: the share of companies expecting to raise prices climbed to 68% in October, while 71% expected their profit margins to decline. The Bank of England said in its September summary that consumer price inflation was 3.1% in August and was likely to rise over the following quarters as the energy shock continued. It also said risks to the inflation outlook were tilted to the upside, and that the inflation path depended on the size and duration of the energy shock and how it passed through the economy. This backdrop places the rise in annual inflation expectations within the broader price pressures discussed by the committee. Meanwhile, expected wage growth for the coming year remained steady at 3.4% in the October survey, while actual wage growth eased to 3.9%.

Sterling’s advance also came as signals of de-escalation and escalation over Iran intersected. The Associated Press said the United States carried out what it described as a limited strike on Iranian targets in the Strait of Hormuz ahead of the U.S. midterm elections, while talks continued to avoid a resumption of broader operations. The agency quoted Iran’s Supreme National Security Council chief as saying the U.S. response to Tehran’s demands to end the war “was not convincing.” The official linked reopening the strait to meeting those demands, saying it “will not be reopened until the United States addresses Iran’s conditions.” The Bank of England had identified the protracted conflict in the Middle East and its impact on energy and the British economy as the main sources of uncertainty around the inflation outlook. These developments coincided with the weaker dollar that accompanied sterling’s rise during Wednesday’s session, according to the description in the FXStreet feed.

In the United States, Bureau of Labor Statistics data showed job openings rising to 7.523 million in September, from 7.190 million in August, while the openings rate increased to 4.5% from 4.3%. The data provide additional context for tracking the dollar ahead of the Bank of England decision, as sterling rose during Wednesday’s session. On British monetary policy, the September survey showed the median participant expectation for the interest rate after the December meeting remained at 3.75%, while the upper quartile was 4.00%, from 92 responses. The U.S. October job openings report is scheduled for release on December 1, according to the Bureau of Labor Statistics calendar. The next near-term event for sterling is the Bank of England meeting on November 5, when the bank will publish its decision, meeting summary, minutes and Monetary Policy Report.