By Stefano Rebaudo April 27 (Reuters) - Sterling edged up against the dollar on Monday as markets focused on geopolitics amid uncertainty over a possible U.S.-Iran deal that could reopen the Strait of
Sterling Gains Against Dollar as Markets Watch Middle East, BoE Decision
Market Movements and Key Influences
By Stefano Rebaudo
April 27 (Reuters) - Sterling edged up against the dollar on Monday as markets focused on geopolitics amid uncertainty over a possible U.S.-Iran deal that could reopen the Strait of Hormuz, while awaiting the Bank of England policy meeting later this week.
Dollar and Sterling Performance
The greenback rallied during the Iran conflict, benefiting in March from safe-haven flows as the U.S. is less exposed than Europe - including Britain - to the adverse effects of surging oil prices, given the region's heavy reliance on oil imports. The dollar edged lower on Monday and hopes for a deal are still alive.
Sterling was 0.08% higher versus the dollar at $1.3544. Against the euro, it fell 0.1% to 86.70 pence.
Political Developments Impacting Markets
UK Political Landscape
Politics remained in focus as Prime Minister Keir Starmer is facing growing scrutiny for appointing Labour veteran Peter Mandelson as ambassador to the U.S.
Labour Party and Upcoming Elections
In local and regional elections on May 7, the Labour Party looks set to suffer large losses at the hands of the populist Reform UK party led by Brexit veteran Nigel Farage.
Bank of England Policy Outlook
Rate Expectations and Market Sentiment
“The pound has been supported by the hawkish repricing of BoE rate hike expectations encouraged by further evidence of stronger UK growth momentum at the start of this year while underlying inflation pressures remained uncomfortably high at the start of the energy price shock,” said Lee Hardman, senior currency economist at MUFG.
With the BoE widely expected to leave interest rates unchanged on Thursday, investor attention is likely to centre on a voting split and the tone of the central bank’s communication.
Analysts argued that expectations for roughly two rate hikes by September would likely only be sustained if a number of policymakers dissented in favour of holding rates steady.
Resilience and Risks for Sterling
Market Reactions to Political Events
“The pound has thus far been able to weather the fallout from the latest twist of the Mandelson affair, helped by resilient demand-side data releases and a somewhat smaller exposure to the energy shock relative to the euro zone,” Barclays said in a research note.
“That said, risks from a more expansionary fiscal policy after the May elections linger and we remain cautious.”
Inflation and Economic Data
Data last week showed that British inflation rose to 3.3% in March from 3.0% in February, an increase partly linked to the initial price impact of the U.S.-Israeli war on Iran.
(Reporting by Stefano Rebaudo; Editing by Thomas Derpinghaus)
