Sterling Drops, Oil Price Increases

The governor of the Bank of England, Andrew Bailey, has triggered a drop in the value of the pound after he claimed that the Bank’s interest rate cuts could become “a bit more aggressive” if inflation continues to dissipate, but he also warned that oil prices might spiral.

Sterling dropped around 1% to $1.31 today (3 October). This means that the pound is on track for its worst day against the Euro since March 2023.

Traders have assumed that the Bank of England will cut interest rates by 0.25% in November, from 5% to 4.75%.

However, with the escalating conflict in the Middle East, oil is estimated to hit $100 per barrel, due to the potential threat of war between Israel and Iran.

Brent crude, the global benchmark of oil prices, has surged by nearly 6% to just under $75 per barrel after Iran launched missiles at Israel. Traders are placing bets on it reaching $100 soon.

Matt Britzman from Hargreaves Lansdown said “Escalating tensions in the Middle East, and the potential for Israel to launch a response against Iran, mean the market is still being driven by supply concerns as traders try to assess potential disruptions to oil production facilities or supply routes in Iran and the wider region.”

Andrew Bailey said in an interview with The Guardian that the escalation in tensions in the Middle East was “very serious” and raised the prospect of a 1970s-style oil crisis should the conflict reach breaking point, however he claimed that counterparts in the region are currently committed to keeping the market stable.