The Pound dipped on Monday, but remained on course for its biggest monthly rise in more than a year, as recent Sterling turbulence seemed to wane.

This month, the Pound – after hitting an all-time low of $1.0327 against the greenback at the end of September – increased by 3.5%, the largest one-month gain since July 2020.

Since the record low in September, Sterling has regained 11% in value, Reuters reports.

At this week’s meeting, the Bank of England will likely hike rates by a further 75 basis points. The UK economy is slowing, yet mounting energy costs and a weak currency have exacerbated the cost-of-living crisis.

As such, according to analysts, markets could be overestimating the Bank of England’s course of action. “The market firmly prices 75 bp, but we think the risk of a softer 50 bp is under-priced as the BoE prepares for the coming recession,” said ING strategist Chris Turner.

“As we have argued previously – now that a lot of the fiscal risk premium has come out of Sterling – the forthcoming tighter fiscal and more dovish than expected monetary policy could prove a bearish combination for Sterling,” he added.

At the time of writing, the Pound was down 0.6% against USD at $1.1545, and down 0.3% versus the Euro at 86.05 pence.

Money markets show traders anticipate close to a 100% chance of a 75-basis point rate hike from the Bank of England, the Reuters report adds. Interest rates in Britain are forecast to peak at 4.87% next September, from a current 2.25%.

“A stitch in time saves nine and it would be better to increase rates by 0.75% to show commitment to inflation-fighting as well as fiscal prudence,” said Newton portfolio manager, Howard Cunningham.

“If the MPC is seen to be dovish, with the autumn statement delayed to 17th November, there is a danger investors might lose patience which could cause renewed volatility, though unlikely on the same scale as recently.”