Sterling rose to $1.338, retracing part of its early-week decline that had taken it close to a three-month low, as the dollar softened following reports that Iran had signalled a willingness to discuss terms for ending the war. According to The New York Times, operatives from Iran’s Ministry of Intelligence made an indirect approach to the CIA a day after US-Israeli strikes began. Israeli officials, however, have urged Washington to disregard the overture for now.
At the same time, investors assessed how higher energy prices might influence Bank of England policy. Market pricing now implies only about a 20% chance of a rate cut this month, sharply lower than the roughly 75% probability seen last week.
Meanwhile, the Office for Budget Responsibility lowered its 2026 UK growth forecast to 1.1%, from 1.4% projected in November, even before incorporating the latest energy shock. It nevertheless expects stronger growth of 1.6% in both 2027 and 2028, alongside reduced borrowing needs and lower inflation projections.
