FX.co ★ Pound Under Pressure Amid Middle East Tensions and Rate Hike Expectations

The pound traded around $1.335, pulling back from recent three-week highs as investors weighed escalating tensions in the Middle East, rising oil prices, and concerns about the impact of inflation on monetary policy and economic growth. Uncertainty over energy supplies increased after the US military continued strikes against Iran, following President Donald Trump’s decision to reinstate a blockade on Iranian shipping and propose a 20% fee for guarding the Strait of Hormuz. In response, markets moved to price in additional Bank of England rate hikes, with two increases in 2026 now almost fully expected and a September hike completely priced in. In the US, Federal Reserve Governor Christopher Waller warned that the central bank may need to raise interest rates “in the near term” if inflation remains above its 2% target. On the political front, Andy Burnham is poised to become the new Labour leader when the leadership contest concludes on Friday and is expected to be formally appointed prime minister next Monday.