Sterling gains against dollar as risk sentiment improves in UK market

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Sterling gains vs dollar

Highlights

Sterling rises more than 0.5% to $1.3421 against the dollar as risk sentiment improves and oil prices fall, reversing previous declines.
The pound remains steady against the euro at 83.41 pence after the Bank of England signals likely further interest rate hikes amid geopolitical uncertainty.
Brent crude drops 3.2% to $95.16 per barrel as optimism grows for Middle East conflict resolution, but supply risks persist near the Strait of Hormuz.

Currency move follows easing haven demand

As reported by Reuters, the pound rises more than 0.5% against the dollar on Monday to $1.3421, reversing most of the previous session's decline as worries around AI-linked stocks ease and oil prices fall.

A somewhat brighter market backdrop reduces demand for the dollar as a safe-haven asset. Sterling is also steady against the euro at 83.41 pence, remaining close to last week's 20-month high after the Bank of England raises interest rates and signals that further tightening is likely unless the Iran war de-escalates and pushes oil prices lower.

Brent crude futures are down 3.2% at $95.16 a barrel after U.S. President Donald Trump plays down the likelihood of renewed strikes on Iran, although attacks on ships near the Strait of Hormuz keep supply risks in focus. Oil prices have eased in recent weeks as markets grow more optimistic about a resolution to the Middle East conflict, but they remain well above levels seen before the war began.

UK growth outlook stays in focus

Central bank officials and investors are continuing to assess the economic effects of the conflict and the energy price shock that follows it. Attention is now turning to British gross domestic product data due later this week, with a Reuters survey of economists expecting 0.7% growth in the third quarter, an improvement from the previous period.

Deutsche Bank economists say in a note that the UK growth story in 2026 reflects more than resilience. They cite early signs of stronger productivity, as well as capital expenditure linked to AI spending, defence spending and industrial policy, as factors lifting output.

The economists add that consumers remain active despite the energy shock and that businesses stay fairly confident even with elevated geopolitical uncertainty. However, they warn that those economic tailwinds are likely to meet equally strong headwinds as the energy shock continues to squeeze household disposable incomes.

In our earlier article, we covered Bank of England Deputy Governor Sarah Breeden’s remarks at the IMF meetings that the UK economy has absorbed the energy price shock better than policymakers initially feared. She pointed to supportive fiscal policy and BoE actions as key stabilizers, while stressing that inflation and market volatility remain important risks that require close monitoring.

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