Sterling tumbles as Middle East conflict pushes oil higher

The British pound fell to its lowest level in three months on Tuesday, as escalating Middle East tensions drove oil prices higher, stoking inflation fears and causing traders to scale back bets on potential Bank of England rate cuts.

Sterling dropped 0.65% against the U.S. dollar to $1.3319, while remaining largely unchanged versus the euro at 87.14 pence. The decline adds to pressure from concerns over the UK’s economic outlook and ongoing domestic political uncertainty, News.Az reports, citing Reuters.

Finance Minister Rachel Reeves said in her budget update that the UK economy is now projected to grow 1.1% in 2026, down from a previous forecast of 1.4% by the Office for Budget Responsibility. She emphasized the importance of a strong economic plan amid increasing global uncertainty.

According to Capital Economics’ chief UK economist, Paul Dales, the Bank of England is likely to remain cautious on inflation risks. Traders now price in only a 22% chance of a rate cut at the upcoming central bank meeting, down sharply from 75% last Friday. British government bond yields rose for the second day in a row.

Global energy markets remain volatile. Brent crude futures jumped 6.8% to $83.05 per barrel, briefly touching their highest since July 2024 at $85.12, while U.S. WTI crude gained 6.7% to $76.04.

Dales noted that the pound’s path will largely depend on the duration and severity of Middle East unrest and its impact on energy prices.

News.Az 

By Aysel Mammadzada