Pound steady as Middle East uncertainty clouds inflation outlook

 The British pound was little changed on Wednesday as markets continued to assess uncertainty surrounding the Middle East conflict.

The muted movement came even after US President Donald Trump indefinitely extended a ceasefire with Iran.

However, clarity remained elusive. It was not immediately clear whether Iran or Israel, a key ally of Washington in the two-month conflict, had agreed to the extension.

The prospect of peace negotiations also appeared uncertain, particularly as the strategically crucial Strait of Hormuz shipping route remained blocked.

The ongoing geopolitical tension has continued to weigh on global market sentiment, limiting directional moves in major currencies, including sterling.

UK inflation rises in line with expectations

Meanwhile, fresh UK economic data pointed to early signs of price pressures linked to the conflict.

Consumer price inflation rose to an annual rate of 3.3% in March, up from 3.0% in February.

The reading matched market expectations.

Dominic Bunning, head of G10 FX strategy at Nomura, said the latest inflation figures did not signal any sharp acceleration, as cited in a Reuters report.

In currency markets, sterling was last marginally higher at $1.3516, while the euro remained largely unchanged against the pound at 86.88 pence.

Interest-rate expectations remain in focus

Market participants have also been closely watching interest-rate expectations, particularly after the Iran conflict pushed up inflation forecasts.

Money markets are currently pricing in one interest-rate hike by the Bank of England this year, with a possibility of a second increase.

Despite this, expectations for the central bank’s upcoming meeting remain subdued.

The Bank of England is widely expected to keep rates unchanged later this month, with markets assigning only around a 10% probability of a hike.

Policymakers face a difficult balancing act

Analysts highlighted the complex environment facing policymakers.

Zara Nokes, global market analyst at JP Morgan Asset Management, described the situation as challenging.

Policymakers face “an unenviable balancing act,” she said, as reported by Reuters.

Nokes pointed to clear upside risks to inflation, particularly if households already accustomed to persistent price pressures push for higher wages to restore purchasing power.

At the same time, she warned that signs of a weakening labour market and falling job vacancies could weigh on consumption and increase downside risks to economic growth.

She added that the Bank of England would likely assess which of these competing risks becomes more dominant before making further policy decisions, as mentioned in the Reuters report.

Overall, the pound’s subdued movement reflects a cautious market stance, as investors continue to weigh geopolitical developments, inflation trends, and the future path of UK monetary policy.