Pound surges to post-Brexit high as BoE turns hawkish

London - The pound climbed to the highest level against the dollar since just after the Brexit vote and gilts slid as Bank of England (BoE) policy maker Gertjan Vlieghe stoked speculation of an interest-rate increase within months.

Sterling surged more than 1.4% to break $1.35 after Vlieghe, considered a dovish monetary policy voter, turned hawkish to tell a conference the moment was approaching for a rate hike. The premium to hold call options on the pound relative to puts rose to the widest since 2009, as markets moved to price two rate increases next year.

The pound has turned into the world’s best-performing currency this month as the central bank’s comments suggest it is willing to look past sluggish wage growth to remove the monetary stimulus put in place after last year’s Brexit vote.

Its performance this September contrasts with a slide caused by a Europe-linked crisis 25 years ago on September 16, 1992, when Britain tumbled out of the Exchange-Rate Mechanism on a day known as “ Black Wednesday.”

“The evolution of the data is increasingly suggesting that we are approaching the moment when the bank rate may need to rise,” Vlieghe said in a speech at the Society of Business Economists in London on Friday. If the economy continues apace, “the appropriate time for a rise in the bank rate might be as early as in the coming months.”

Sterling rose 1.4% to $1.3589 as of 11:20, its highest level since June 24, 2016, the day after the Brexit vote. It strengthened as much as 1.2% to 87.94 pence per euro. The yield on two-year UK government bonds climbed 6 basis points to 0.44%.

Money markets are now pricing an almost 75% chance of a rate increase in November, with a 25-basis point rise fully priced for February and a second one by December 2018.

“The important question now is what the MPC means with ‘over the coming months’,” said Commerzbank AG strategist Lutz Karpowitz in a research note ahead of Vlieghe’s comments. “The longer this period is going to be, the higher the risk that the economy starts cooling, thus taking the pressure off the BoE.”

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