Sterling climbs as hot UK CPI cements BoE hike bets, Aussie rallies

Sterling led the early-Europe session after UK inflation came in hotter than expected. September CPI rose to 3.5% year on year against 3.4% expected, investingLive reports, reinforcing bets on a Bank of England rate hike in November.

The dollar stayed on the back foot. According to Investing.com, the greenback held near a three-week low as the euro and yen consolidated and markets weighed the Iran war.

UK inflation: services is the worry

The headline reading was the highest since October last year, investingLive says, with higher energy costs the main driver. Transport, especially motor fuels, made the largest upward contribution. The prior reading was 3.1%.

Core CPI matched forecasts at 2.8%, up from 2.6%. The part that may concern the BoE more is services inflation, which jumped to 3.7% from 3.4%, according to investingLive's session preview. The same outlet notes the market reaction was relatively muted, because a November hike was already fully priced. Before the data, investingLive said traders were almost fully pricing another 25 bps move.

Investing.com reports the pound climbed on the data as the dollar weakened. The release follows Tuesday's jobs beat; our sister site explains how to read UK labour market data.

Reference rates

The ECB fixing of 2026-10-21 captures the move. GBP/USD fixed at 1.3402, up 0.41% from 1.3347 on 2026-10-20. AUD/USD was the strongest of the majors at 0.7034, up 0.70%. EUR/USD fixed at 1.1234, up 0.17%, and USD/JPY at 157.88, down 0.16%. These are official ECB reference rates, not live quotes.

Overnight: RBA, Japan and China

• Australia: RBA's Hauser put a November hike in play, according to investingLive's Asia-Pacific wrap.
• Japan: Exports rose 16.7%, the 13th straight monthly gain, on AI chip demand, and the trade gap narrowed, investingLive reports. The outlet calls the data broadly supportive for the yen and the BoJ's tightening case. Finance minister Katayama said he sees no gap with the BoJ and that wage-driven inflation is near.
• China: The PBOC set the USD/CNY midpoint at 6.7192 against an estimate of 6.6779, per investingLive.

Bonds and risk

Investing.com reports US Treasury yields dropped on safe-haven flows while French yields hit the 5% mark. European equities held steadier, with the CAC 40 up 0.3%, and the euro was only slightly lower near 1.1215, still above 1.1200, according to investingLive. The writer warned not to mistake the calmer mood for an all-clear as spreads widen.

Geopolitics added a new risk. investingLive reports that US intelligence says Putin ordered a NATO sabotage drive, calling the Leipzig drone attack an opening shot. The outlet flags energy as the channel to watch.

On the ECB side, Philip Lane gave a speech on euro liquidity lines and the international monetary system.

What to watch next

1. BoE November decision: a 25 bps hike is close to fully priced, and the services jump keeps attention on the size of any follow-through.
2. RBA November meeting: Hauser's comments have put a hike on the table.
3. US-Iran talks: investingLive's European wrap flags rising crude volatility on conflicting reports over negotiations.
4. Russia-NATO tensions: watch for any official response and its effect on energy supply.
5. Japan's October trade data: investingLive expects the import bill to rebound as Suez-routed tankers arrive.