FX.co ★ Sterling Strengthens on Rate Hike Bets

The pound held firm above $1.34, trading at its highest level since mid-June and near a one-year peak against the euro. Its strength reflects expectations of higher UK interest rates and a reduction in domestic political uncertainty, as well as investor optimism over the prospect of closer UK-EU relations ahead of next week’s summit. At the same time, rising tensions in the Middle East have driven oil prices to one-month highs, bolstering market expectations of further Bank of England rate hikes. Investors now fully price in a November increase, with a second move anticipated by March 2027. On the political front, attention is turning to Andy Burnham’s expected appointment as prime minister on July 20. Markets are closely watching his choice of finance minister, with Foreign Secretary Yvette Cooper now seen as the frontrunner over Ed Miliband, who is viewed as more inclined toward fiscal expansion.