The pound rose to the highest in three weeks and gilts fell as U.K. inflation accelerated more than forecast to break through the Bank of England’s target for the first time since 2013.
The data showing annual inflation picked up to 2.3 percent in February, versus a median estimate of 2.1 percent in a Bloomberg survey of economists, underlined bets by investors that the BOE will tighten policy as early as next year. Market rates are now fully pricing a 25-basis-point rate rise by August 2018, compared with a 67 percent chance priced on Monday.
Sterling rallied as much as 0.9 percent to $1.2471, the highest since Feb. 27. Ten-year gilts dropped with yields rising six basis points to 1.29 percent, the highest in more than a month.