MORE BOE'S PILL: MY VIEW WOULD BE THAT WE WILL SEE EVIDENCE THAT MOTIVATES FURTHER RISES NEXT YEAR

Bank of England policymaker Huw Pill has said his view is that evidence will emerge next year that justifies further interest rate increases, signalling a hawkish stance on monetary policy. The mechanism at work is the rate differential channel: expectations of a higher Bank Rate relative to peers widen the yield advantage on sterling assets, which typically supports GBP through capital inflows into gilts and sterling-denominated instruments. Sterling and short-dated gilts are the most directly exposed, as market pricing for the Bank Rate path shifts most sharply at the front end of the curve, while longer-dated gilts remain sensitive to any inflation-persistence implications. Traders will focus on the next UK CPI release and the services inflation and wage-growth components, since these are the data points most likely to confirm or undermine the case for further tightening that Pill has outlined.

The British Pound (GBP) reacts sharply to Bank of England Monetary Policy Committee decisions, UK CPI and GDP releases, Gilt yield moves, and domestic political events. Cable (GBP/USD) is one of the most news-sensitive forex majors.

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