The British pound traded just below $1.34 as tensions in the Middle East intensified and expectations grew for a tighter monetary policy stance from the Bank of England. The United States and Iran exchanged air strikes, and US President Donald Trump warned of further action unless Tehran swiftly agrees to a peace deal.
Money markets are now pricing in at least a 25-basis-point rate hike by the Bank of England in September, with a meaningful probability of a second increase before year-end. Against this backdrop, investors are turning their attention to Friday’s release of monthly GDP figures, alongside data on manufacturing output and the foreign trade balance.
Consensus forecasts suggest the UK economy likely contracted by 0.1% in April, reflecting the lagged impact of the Iran conflict on business activity and consumer sentiment. Political uncertainty surrounding the Labour Party’s leadership is seen as an additional drag on growth.
