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.



News Stream
Sterling Near Three-Month Low Amid Middle East Tensions
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.
2026-03-05
Sterling Rebounds as Dollar Softens Amid Middle East News
Sterling climbed to $1.338, recovering some of the early-week losses that had pushed it near three-month lows, as the dollar eased following reports that Iran offered to discuss terms for ending the war. The New York Times reported that, a day after US-Israel attacks began, operatives from Iran’s Ministry of Intelligence made an indirect approach to the CIA. Israeli officials, however, have advised Washington to disregard the overture for now. Investors also weighed the impact of rising energy costs on Bank of England policy. Markets now see just a 20% chance of a cut this month, down from 75% last week, and price only a single 25-basis-point reduction for the year. Meanwhile, the Office for Budget Responsibility lowered its 2026 UK growth forecast to 1.1% from November’s 1.4%, even before factoring in energy shocks, but projected stronger growth of 1.6% in both 2027 and 2028, alongside lower borrowing and inflation expectations.
2026-03-04
Sterling Slides Amid Middle East Tensions
Sterling fell below $1.34, touching its lowest since December 9, as a stronger US dollar drew safe-haven demand amid Middle East tensions, while investors reacted to Chancellor Rachel Reeves’ downgraded growth forecasts. US President Donald Trump said the military campaign against Iran could last four to five weeks but could be extended if needed. Meanwhile, surging energy costs following the Strait of Hormuz closure and suspended Qatari LNG exports, may push the Bank of England toward a hawkish stance. Domestic political and economic developments added to Sterling’s downward pressure. The Office for Budget Responsibility (OBR) lowered its UK growth forecast for 2026 to 1.1%, down from 1.4% projected in November, even before factoring in potential energy price shocks. However, the OBR revised its outlook for 2027 and 2028, projecting growth of 1.6% in both years. The agency also forecasted lower borrowing and inflation over the coming period.
2026-03-03