Inflation heating up + economy still resilient pours cold water on expectations for Bank of England rate cuts.

Currency markets are increasing their bets on the Bank of England keeping interest rates unchanged at 4% for the remainder of this year, as signs of accelerating inflation and a more resilient economy make the case for further easing of monetary policy less compelling. On Monday, traders reduced their bets on another 25 basis point rate cut by the Bank of England this year, with forward contracts indicating a less than 50% chance of a cut. Earlier this month, rate cut expectations had already been fully priced in by the market. Data expected to be released on Wednesday is likely to show that overall inflation in July rose to 3.7%. The Bank of England had previously forecast that inflation would peak at 4% in September, double its target. Traders are reducing their bets on a rate cut by the Bank of England this year. Since the Bank of England unexpectedly released hawkish signals at its August meeting, the market has reduced its bets on loose policies. While the Bank of England did cut rates by 25 basis points at that time, four members of the Monetary Policy Committee dissented, raising doubts about whether the Bank of England would gradually cut rates for the remainder of the year. Subsequent stronger data has further reinforced the need for a cautious stance. A report released last week showed that GDP grew by 0.3% in the second quarter of this year, exceeding economists' and the Bank of England's forecast of 0.1%. Another report showed that the labor market performed better than analysts' previous expectations. The changing outlook for Bank of England policy is boosting the pound. The pound has risen by 2.5% against the US dollar this month, making it the best-performing currency in the G10 group.