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The British pound climbed to $1.346, moving away from a three-month low of $1.335 recorded on March 3, as investors rotated away from the US dollar and back into other currencies amid hopes that the conflict will have a smaller impact on inflation than previously feared. Sentiment improved across markets as oil prices cooled following efforts by US President Donald Trump to reassure investors. Trump said the conflict could end quickly and announced that the US Navy would escort tankers through the Strait of Hormuz to safeguard shipping routes. Oil prices fell nearly 6%, and European natural gas prices also retreated. Meanwhile, expectations for Bank of England policy have shifted, with traders again leaning toward the prospect of rate cuts. Markets are now pricing in roughly a 50% chance of a rate reduction by September, marking a sharp turnaround from the previous session when little policy movement was expected and a rate hike had briefly been priced in earlier in the day.

Sterling slid to a three-month low of $1.33 on Monday, extending last week’s losses, dragged down by a stronger US dollar and UK political pressures. The greenback remained in demand as Middle East tensions entered its second week with no sign of easing after US President Trump demanded Tehran’s unconditional surrender. This prompted concerns over rising oil and gas prices, stoking inflation fears and driving expectations of a BoE rate hike, with money markets now pricing in a 70% chance of an increase by year-end, compared with bets on rate cuts just last week. Sterling also faced additional pressure after Prime Minister Keir Starmer reaffirmed his decision not to join initial US-Israel strikes on Iran, emphasizing diplomacy instead. Trump recently dismissed reports that the UK planned to deploy the aircraft carrier HMS Prince of Wales to the Middle East, calling Britain a “once great ally,” though Starmer’s office confirmed the two leaders had spoken by phone about the conflict.

The British pound fell toward $1.33, its weakest level since December 9, as investors weighed the potential economic impact of the escalating Middle East conflict alongside rising inflation pressures and the possibility of a more hawkish Bank of England stance. Regional tensions escalated as Israel struck Beirut on Friday, after ordering the unprecedented evacuation of the city’s southern suburbs, marking a significant expansion of its war against Iran, launched a week ago in coordination with the US. Meanwhile, President Trump claimed a role in choosing Iran’s next supreme leader following Ayatollah Khamenei’s reported death. The resulting surge in energy prices is expected to keep inflation elevated across Europe, limiting the likelihood of a Bank of England rate cut. UK money markets now assign less than a 20% chance of a rate cut this month, down sharply from over 80% before the conflict, while UK rate futures price less than a 50–50 chance of a single cut by the end of 2026.