By Samuel Indyk LONDON, March 24 (Reuters) - The British pound fell against the dollar on Tuesday, reversing some of its rise from the day before, as the Middle East war continues to hold sway over
UK Pound Drops, Business Activity Growth Slows Amid Iran War Impact
By Samuel Indyk
Market Reactions and Economic Impact
Pound Performance Amid Middle East Tensions
LONDON, March 24 (Reuters) - The British pound fell against the dollar on Tuesday, reversing some of its rise from the day before, as the Middle East war continues to hold sway over markets and as signs emerged that the conflict was starting to affect Britain's economy.
The pound was last down 0.4% against the dollar at $1.3405, after jumping 0.9% the day before when President Donald Trump said the U.S. had held "productive" talks with Iranian officials over the conflict.
Iran denied it had engaged in any direct negotiations, calling Trump's comments "fake news", which has put a cap on the pound's rebound against the dollar.
"We remain concerned that market sentiment will remain tense as Iran quickly denied claims of any negotiations having taken place," said Jens Nærvig Pedersen, FX and rates strategist at Danske Bank.
Business Activity and Inflation Pressures
Iran War Impact Visible
British business activity grew at the slowest pace in six months in March, a survey showed on Tuesday, one of the first signs that war in the Middle East was having an impact on the British economy.
Price pressures also showed signs of increasing, with manufacturers' input costs seeing the biggest month-on-month acceleration since 1992.
"The persistence of the shock will determine how much this will feed into UK households and firms," said Tommy von Brömsen, FX strategist at Handelsbanken.
"If this (the Middle East conflict) goes on for a few more weeks, then maybe the UK stands to lose more than others and that will be pound negative," he said.
Bank of England's Response
Bank of England Ready to Act
Last week, the Bank of England's rate-setters said they were "ready to act" to see off risks to the economy from the war, pushing investors to ramp up expectations for rate hikes this year as they expect the central bank to focus on inflation risks.
Market Expectations for Interest Rates
Markets are betting that the BoE will raise rates at least twice in 2026 to stop higher inflation expectations from becoming embedded in the economy. Prior to the conflict, investors had expected the BoE to lower borrowing costs twice this year.
"More data is needed to assess both the magnitude of the impact and the likely pass-through of higher energy costs to broader inflation," said Nick Rees, head of macro research at Monex.
"Absent that, we expect rate-setters to remain in wait-and-see mode, with the April PMIs likely to be a key watch ahead of the next round of monetary policy decisions."
Pound vs. Euro
Against the euro, the pound was little changed at 86.48 pence.
(Reporting by Samuel Indyk; Editing by Alex Richardson)
