Sterling Holds Steady as Markets Weigh Middle East Tensions and Key UK Economic Events

LONDON: The British pound remained broadly stable against the U.S. dollar on Wednesday as investors monitored escalating tensions between the United States and Iran while awaiting a series of key economic and political developments in the United Kingdom.

Sterling rose 0.13 percent against the dollar to $1.3393, recovering slightly after falling to its lowest level since May 18 earlier in the week. Against the euro, the pound was little changed at 86.24 pence.

Market sentiment remained relatively calm despite a fresh escalation in the Middle East. Iran’s Revolutionary Guards said they had launched missile and drone attacks on U.S. military bases in Jordan, Kuwait and Bahrain in response to American strikes on Iranian targets near the Strait of Hormuz. The latest exchange of hostilities followed U.S. President Donald Trump’s statement that Iran had shot down a U.S. Apache helicopter near the strategic waterway.

Although the developments marked a significant increase in tensions between Washington and Tehran, currency markets largely appeared to focus on expectations that the conflict could eventually be contained, leaving the traditionally safe-haven U.S. dollar largely unchanged.

Investor attention is now turning to a series of important economic releases and political events in Britain. The first major indicator will be Friday’s gross domestic product (GDP) data, followed next week by inflation and retail sales figures, as well as the Bank of England’s latest monetary policy decision.

Markets are currently pricing in around a 90 percent probability that the Bank of England will leave interest rates unchanged at its June 18 meeting. However, investors will closely examine policymakers’ comments for clues about the future path of interest rates.

Analysts have suggested that signs of weakness in the labour market could influence the central bank’s outlook and potentially reduce expectations for future rate increases.

Political developments are also attracting attention ahead of the June 18 Makerfield by-election. The contest could potentially return Greater Manchester Mayor Andy Burnham to Westminster as the governing Labour Party’s candidate. A victory could fuel speculation about future Labour Party leadership dynamics and raise questions about the direction of the government’s fiscal policies.

Jane Foley, Head of FX Strategy at Rabobank, said markets were currently in a waiting phase due to the lack of major political developments in recent weeks.

She noted that political uncertainty following the by-election could weigh on sterling, particularly if leadership questions within the Labour Party become more prominent. Foley also said investors would be closely watching the Bank of England for signals on whether concerns about labour market weakness might affect future monetary policy decisions.

With a packed calendar of economic data, central bank announcements and political developments ahead, analysts expect sterling to remain sensitive to both domestic and international events in the coming days.