GBP rose against other major currencies in the European session on Tuesday, as the prospect of interest rate hikes by the UK’s central bank was back in investors' focus.

At the September meeting, the Bank of England’s (BoE) policymakers indicated that rate hikes were not imminent, but the recent developments on the price front had “strengthened the case” for “some modest tightening of monetary policy” over the next few years, “although considerable uncertainties remain”. In addition, they dropped previous guidance that they did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

Growing inflation expectations weighted on investors’ sentiment last week, causing a steep sell-off in risk-sensitive sterling.