By Sophie Kiderlin LONDON, April 14 (Reuters) - The British pound rose against a slightly weaker U.S. dollar on Tuesday, trading at levels last seen before the Iran war as markets hoped for a
Sterling Rises to Pre-Iran War Levels as Markets Eye Conflict Resolution and BoE Policy
Market Movements and Economic Outlook
By Sophie Kiderlin
Sterling’s Performance Amid Geopolitical Tensions
LONDON, April 14 (Reuters) - The British pound rose against a slightly weaker U.S. dollar on Tuesday, trading at levels last seen before the Iran war as markets hoped for a resolution to the conflict.
Negotiating teams from the U.S. and Iran could return to Islamabad later this week, five sources said, days after the highest-level talks between the two countries in decades ended without a breakthrough.
Meanwhile, the U.S. blockade of Iran's ports got underway, angering Tehran and adding uncertainty around the crucial Strait of Hormuz shipping route.
Exchange Rate Movements
Sterling was last 0.33% higher against the dollar at $1.3548. The pound last traded at this level just before the Iran war broke out in late February.
Against the euro, the pound was last little changed at 87 pence.
Factors Influencing the Pound
Energy Imports and Safe-Haven Flows
Britain's dependence on energy imports has kept the pound under pressure for much of the conflict, during which oil and gas prices have risen sharply. The dollar, meanwhile, had been broadly strengthening, although hopes the conflict will be resolved have sent the safe-haven currency lower again.
Market Sentiment and Political Fundamentals
"In our view, this environment is actually quite constructive for the pound, not because anything's actually improved. We're just seeing traders distracted away from some really quite nasty fundamentals, political fundamentals in the UK," Nick Rees, head of macro research at Monex Europe, said.
But sterling is still expected to underperform in the coming months, he said, as attention is set to return to domestic political issues.
Upcoming Local Elections and Political Uncertainty
"We do have those local elections coming up at the beginning of May and we don't think markets or indeed a lot of politicians have grasped quite how bad these could be for the Labour Party," Rees said, noting that there could be further speculation over a possible challenge to Prime Minister Keir Starmer's leadership.
Bank of England Policy and Market Expectations
BoE Officials’ Comments and Rate Outlook
Elsewhere, several Bank of England officials are due to speak on Tuesday, including Governor Andrew Bailey.
Investors will be following the comments closely as higher energy prices have shifted market expectations away from possible rate cuts to potential rate hikes. Money markets were last pricing in at least one 25-basis-point BoE hike in 2026, with a strong chance of a second, even as most brokerages expect the central bank to keep policy steady.
Governor Bailey’s Perspective
Bailey said earlier this month that markets were getting ahead of themselves by pricing in rate hikes.
(Reporting by Sophie Kiderlin. Editing by Mark Potter)
