Sterling holds narrow range as Iran conflict outlook shapes rate expectations

Traders Union
All News
Financial News
Sterling holds narrow range

All news

Editors' Picks

Crypto News

Financial News

Market Voices

Billionaires

Companies

Broker News

Regulators News

Ashutosh Sureka

01.06.2026

Sterling holds narrow range as Iran conflict outlook shapes rate expectations — Sterling steady amid Iran talks

Sterling is trading in a tight band at the start of the week as investors watch for developments in U.S.-Iran peace talks and the implications for energy prices. The pound remains supported by relatively high UK interest rates even as Britain's exposure to imported energy keeps the currency sensitive to the war's inflation effects.

Highlights

Sterling trades flat at $1.3460 versus the dollar as U.S.–Iran deal negotiations and fresh Gulf attacks weigh on market sentiment.
Oil futures rise Monday after a nearly 20% fall last month, while UK inflation risks persist with oil prices still 30% above pre-war levels.
Markets currently price in 35 basis points of BoE tightening for 2024, but Governor Bailey signals no rush for further rate hikes despite inflation above 2% target.

Energy conflict and currency moves

As reported by Reuters, the British pound is little changed against the dollar on Monday, with traders keeping positions restrained while negotiators from the U.S. and Iran continue to work on a deal.

Fresh attacks in the Gulf are challenging optimism over the reopening of the Strait of Hormuz, a critical oil and gas route that has been closed to most maritime traffic since the war began in February. Oil futures jump on Monday, although prices fell almost 20% last month, the steepest monthly drop since March 2020.

Against this backdrop, sterling is broadly flat versus the dollar at $1.3460. It is also up 0.1% against the euro at 86.56 pence.

BoE policy outlook supports sterling

Britain's dependence on energy imports leaves it more exposed than the U.S. to higher fuel costs. Although oil prices have fallen in recent weeks, they are still 30% above levels seen before the war, keeping inflation risks in focus for currency markets.

Tommy von Brömsen, FX strategist at Handelsbanken, says the pound has been resilient during the war because UK interest rates remain higher than in most other countries. Before the conflict, investors expected the Bank of England to cut rates twice this year, but markets then shifted to price in increases as policymakers faced the prospect of energy-driven inflation.

Markets are now pricing in about 35 basis points of monetary tightening this year, suggesting one quarter-point increase and roughly a 40% chance of a second. Still, BoE Governor Andrew Bailey said on Friday that allowing inflation to run above the central bank's 2% target is justified, signalling there is no need to move quickly with rate hikes.

In our earlier report on the U.S.-Iran strikes and the Strait of Hormuz talks, we noted that fresh exchanges despite a cease-fire pushed oil prices higher as traders priced in renewed disruption risks. The piece also outlined the core issues in the draft deal—reopening Hormuz, nuclear limits, sanctions relief, and access to frozen Iranian revenues—highlighting how any setback could keep energy costs elevated and feed through to global inflation expectations.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.