The pound slipped to $1.335, pulling back from a three-week high, as rising oil prices fueled fresh inflation concerns and strengthened expectations of further Bank of England interest rate hikes, darkening the UK economic outlook. Brent crude advanced to a two-week high following new US strikes in Iran, casting doubt on the durability of the peace deal and adding to inflationary pressures.
Tensions escalated after US President Trump stated at the NATO summit in Ankara that, in his view, the Iran ceasefire is over. In response, markets now fully price in a 25-basis-point BoE rate increase by year-end, up from a 75% probability before Trump’s comments.
On the domestic political front, Andy Burnham, the frontrunner to succeed Keir Starmer as prime minister, has yet to name a finance minister, though former energy minister Ed Miliband is emerging as the leading candidate. Sterling’s relative resilience in the face of recent political upheaval suggests that much of the negative news has already been discounted.
