Pound Slightly Up on Middle East Optimism

The British pound rose to $1.352, buoyed by hopes of easing tensions in the Middle East and as investors analyzed the latest UK inflation figures. US President Trump extended the Iran ceasefire indefinitely, despite stalled talks and an ongoing US naval blockade in the Strait of Hormuz. He stated that Pakistan, mediating the discussions, urged restraint but insisted the blockade would remain unless Iran concedes. Meanwhile, Iran’s Tasnim news agency hinted at possible US flexibility on the blockade. Economically, UK headline inflation for March reached 3.3%, up from 3.0% in February, largely driven by rising petrol prices due to the Iran war. Core inflation softened slightly to 3.1% from 3.2%, falling just below forecasts, while services inflation edged higher to 4.5% from 4.3%. Traders have slightly reduced their expectations for Bank of England rate hikes this year, pricing in around 39 basis points of increases, still pointing to two hikes.

The pound held around $1.35, just below last week’s three-week high, as markets grappled with political instability and rising geopolitical risks. Olly Robbins, the former Foreign Office chief who was removed from his position by Prime Minister Keir Starmer due to the Peter Mandelson ambassador controversy, revealed in his testimony that while he experienced pressure to greenlight Mandelson’s appointment, there was no direct engagement with No. 10 throughout the vetting procedure. Meanwhile, Iran denied sending a delegation to Pakistan for US talks, while President Trump accused Iran of repeated ceasefire violations, escalating tensions. On the economic front, UK jobs data showed slowing wage growth, a surprise drop in unemployment, and fewer vacancies, though the report had little market impact, as it reflects pre-war conditions and fails to capture the current labor landscape.

Sterling held near $1.35, slightly below last week’s three-week peak, as political uncertainty and geopolitical risks dominated markets. Former Foreign Office chief Olly Robbins testified over Peter Mandelson’s contested US ambassador appointment, a scandal that could threaten PM Keir Starmer if Robbins confirms Starmer was aware of failed security checks. Meanwhile, US President Donald Trump confirmed that the two-week ceasefire between Washington and Tehran is due to expire on Wednesday evening, while US Vice President JD Vance and an Iranian delegation are expected to arrive in Pakistan later today for peace talks. On the economic front, UK unemployment fell to 4.9% in the three months to February 2026, down from 5.2% the previous month and surpassing market expectations. Wage growth, including bonuses, slowed to 3.8%, and to 3.6% excluding bonuses, both marginally above forecasts. UK payrolls dropped by 11,000 in March, reflecting economic strain from the conflict.