Sterling fell to a three-month low of $1.33 on Monday, extending the previous week’s losses under pressure from a stronger US dollar and mounting political tensions in the UK. Demand for the greenback remained firm as the conflict in the Middle East entered its second week with no sign of easing, after US President Trump called for Tehran’s unconditional surrender. This escalated concerns over rising oil and gas prices, fueling inflation fears and pushing investor expectations for a Bank of England rate cut this month below 20%. Futures markets now indicate no additional policy moves for the rest of the year.
The pound also came under additional strain after Prime Minister Keir Starmer reiterated that the UK would not take part in the initial US-Israeli strikes on Iran, stressing the need for a diplomatic approach instead. Over the weekend, Trump publicly rejected reports that Britain planned to send the aircraft carrier HMS Prince of Wales to the region, describing the UK as a “once great ally.” Starmer’s office, however, confirmed that the two leaders had discussed the conflict by phone.
