FX.co ★ Pound Rises After BoE Holds Rates and Warns on Inflation Risks

Sterling climbed to $1.34, its strongest level since July 20, after the Bank of England voted 6–3 to leave the Bank Rate unchanged at 3.75%, defying market expectations of a narrower 7–2 split. The BoE noted that the impact of higher energy prices remains uncertain and cautioned that inflation is likely to pick up later this year as increased energy costs pass through to the broader economy. It also warned that the risk of entrenched inflation has risen and that the balance of risks is now tilted to the upside, while stressing that developments in the Middle East could still materially reshape the outlook. At the same time, renewed US airstrikes on Iran, launched in response to attacks on American forces across the Middle East, pushed oil prices higher and undermined risk sentiment. Adding to the uncertainty, the Federal Reserve on Wednesday left interest rates unchanged, even as three FOMC members dissented in favor of a rate hike.