Sterling Outperforms Euro as BOE Rate Expectations, Euro Zone Outflows Lift Pound

The pound edged 0.1% higher to $1.34 on Thursday, outperforming most major currencies as outflows from euro zone assets lifted UK stocks, bonds and sterling relative to regional peers. Higher-than-expected UK inflation this week reinforced bets the Bank of England will raise rates at its November 5 meeting, with money markets pricing at least three quarter-point hikes by April versus roughly two from the ECB. The widening rate differential fuels carry trades funding euro-denominated positions in sterling. The euro headed for a fourth straight weekly decline against the pound, down 0.5% this week and 1.8% for the year, while French bond yields hit 24-year highs on fiscal concerns. UK gilts were flat as French, Italian and Belgian yields rose sharply; the FTSE 100 fell 0.6%, outperforming the STOXX 600's 1% drop. ING strategist Chris Turner cited "independent sterling strength and independent euro weakness," noting greater market confidence in a BOE tightening cycle.