LONDON: The pound climbed to a one-week high versus the US dollar and a 21-month high against the euro on Wednesday after data showed British inflation surged to a 10-year high last month, boosting expectations of a rate hike as early as next month.
Consumer prices rose by 4.2% in annual terms in October, accelerating from a 3.1% increase in September. Both the BoE and a Reuters poll of economists had pointed to a reading of 3.9%.
"This morning's UK inflation data was stronger than expected and, alongside Tuesday's labour market data, further strengthens the case for a December hike," Mizuho strategists said.
Sterling rises after UK jobs rise eases BoE's worries
"With 15 bps priced for the next meeting the risk is that markets start thinking about a 25 bps hike."
Against the US dollar, the British currency edged 0.3% higher to $1.3480, its highest level since Nov. 10. It scored a bigger milestone against the struggling euro, rising to a February 2020 high of 83.90 pence.
Money markets now expect more than 15 bps of rate hikes next month compared with around 10 bps on Nov. 5, a day after the Bank of England shocked markets by keeping rates on hold.
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