Sterling Near Three-Month Low Amid Middle East Tensions

2026-03-05 09:47 By Joana Ferreira 1 min. read

Sterling traded around $1.335, close to its weakest level since December 9, as investors weighed the potential impact of the escalating Middle East conflict alongside rising inflation pressures and the prospect of a more hawkish stance by the Bank of England.

The conflict has intensified sharply, with a US submarine sinking an Iranian warship near Sri Lanka and NATO air defenses intercepting an Iranian ballistic missile fired toward Turkey.

Investors also considered the implications of rising energy costs for UK monetary policy.

Markets now assign just a 20% probability of a rate cut this month, and anticipate only a single 25bps reduction in borrowing costs for the year.

Meanwhile, the Office for Budget Responsibility revised down the UK’s 2026 growth forecast to 1.1%, from 1.4% in November, even before accounting for potential energy shocks.

Growth projections for 2027 and 2028 were raised to 1.6% for both years, alongside expectations for lower borrowing and subdued inflation.



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