Sterling Eases from 8-Week High

The British pound eased to around $1.356 as traders scaled back expectations for a Bank of England rate hike, supported by growing optimism that the Middle East conflict may be nearing an end. Policymakers have signaled no urgency to tighten policy, with Governor Andrew Bailey saying it is too early to assess the war’s impact, describing it as a major energy shock whose duration will shape inflation. Also, policymaker Megan Greene said markets were right to dial back aggressive rate hike expectations. The conflict is expected to weigh heavily on the UK economy, lifting borrowing costs and inflation while dampening growth prospects ahead of the April 30 policy meeting. Despite this, recent data showed strong momentum before the war, with GDP rising 0.5% in February. Sterling remains near an eight-week high and is up about 2.6% in April on hopes of a peace deal.

The British pound traded just below $1.36, near its strongest level since mid-February, as traders weighed optimism over US-Iran peace talks against lingering economic risks. While mediators reported progress in extending the ceasefire and US President Donald Trump hinted at a potential breakthrough, uncertainty persists following Washington’s plan to deploy 10,000 additional troops to the region. With the Strait of Hormuz still closed, high energy costs are fueling inflation, leading markets to expect two Bank of England rate hikes this year. Attention also turns to a high-stakes meeting between UK Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent at the IMF-World Bank Spring Meetings in Washington. The talks follow Trump’s latest remarks to Sky News, which escalated tensions and raised doubts about last year’s trade agreement. On Tuesday, Reeves delivered her sharpest criticism yet of Trump’s Middle East conflict, warning of its damaging economic spillover.

The British pound rose toward $1.36, reaching its strongest level since mid-February, as investors positioned for potential Middle East peace negotiations, despite the US maintaining its blockade on Iranian ports. With US and Iranian delegations possibly resuming talks in Islamabad this week after their latest round ended without progress, risk sentiment improved, sending oil prices below $100 per barrel. Yet, inflationary pressures from high energy costs are set to persist while the Strait of Hormuz remains closed, leading markets to expect a more hawkish Bank of England. Traders now price in nearly two interest rate hikes by year-end. On the domestic front, UK like-for-like retail sales increased 3.1% in March, fueled by a 6.2% rise in food sales as consumers stocked up for the Easter holiday.