FX.co ★ Pound Slips as Middle East Tensions Weigh on Markets

The pound slipped back below $1.34, pulling away from three-week highs, as investors responded to escalating tensions in the Middle East. Oil prices jumped after a fresh round of US strikes on Iran, with both sides disputing the status of the Strait of Hormuz. US Central Command said it had hit dozens of targets aimed at curbing Iran’s capacity to threaten regional shipping, while Tehran declared the strait would remain closed "until further notice." The heightened uncertainty reinforced inflation fears and led markets to ramp up expectations of further Bank of England interest rate increases. Investors now broadly expect at least one additional rate rise later this year, with a second move still on the table. On the political front, Andy Burnham is poised to become the new Labour leader when the contest concludes on Friday and is expected to be formally appointed prime minister next Monday. Sterling’s relative resilience despite the recent political upheaval suggests much of the negative news has already been priced in.