Pound Slips After US Strikes on Iran

The pound slipped to $1.34 as Middle East tensions flared, with renewed US-Iran conflict driving oil prices up and exposing the fragility of recent peace efforts. Brent crude rose to nearly $97 a barrel after the US conducted airstrikes on an Iranian military site and imposed sanctions to block Iran’s revenue from ships in the Strait of Hormuz. A US official described the strikes as defensive and reaffirmed the country’s commitment to the month-old ceasefire. At the same time, Kuwait reported countering hostile drone and missile threats. The heightened tensions in the region prompted traders to boost bets on Bank of England rate hikes, despite a series of recent weak data releases pointing to sluggish economic activity in the UK.

The pound held steady at $1.344 as investors awaited Middle East developments amid optimism over a potential US-Iran peace deal and diminishing expectations for Bank of England rate hikes. Investors remain focused on the region, heartened by the recent lack of negative signals from both sides and lingering hopes that an agreement to ease tensions and reopen the Strait of Hormuz remains possible despite recent strikes. Traders have trimmed their bets on BoE rate hikes, now expecting about 40 basis points of tightening by year-end, with a roughly 50% chance of a hike next month. Attention now turns to upcoming BoE policymaker speeches for monetary policy signals and political developments around Prime Minister Keir Starmer following Labour’s regional election setbacks.

The pound slipped to $1.347, as escalating US-Iran tensions reignited inflation concerns and dimmed the global growth outlook. On Monday, Iran reported explosions in the southern port city of Bandar Abbas, while the US confirmed it had conducted "self-defense" strikes targeting Iranian missile launch sites and vessels attempting to deploy naval mines. Earlier that day, US President Donald Trump stated that a memorandum of understanding between the two nations was "largely negotiated" and would reopen the critical Strait of Hormuz shipping lane. Meanwhile, UK economic data revealed contractions in private sector activity during May, alongside cooling inflation and a softer labor market, leading investors to trim expectations for Bank of England rate hikes. Focus now shifts to forthcoming speeches from BoE policymakers for monetary policy direction, as well as political developments surrounding Prime Minister Keir Starmer after Labour’s regional election defeats this month.