Pound Sterling remained largely stable against the US Dollar on Wednesday as investors kept a close watch on renewed tensions between the United States and Iran, which have raised fresh uncertainty over efforts to reach a peace agreement.
Iran’s Revolutionary Guards reported that they had launched missile and drone strikes on US military bases in Jordan, Kuwait, and Bahrain in response to American attacks on Iranian positions near the Strait of Hormuz.
The developments, following claims by US President Donald Trump that Iran had shot down a US Apache helicopter in the same region, represent one of the most serious escalations since a ceasefire was agreed between Washington and Tehran in April.
However, currency markets appeared largely unfazed by the latest attacks, instead remaining focused on expectations that the conflict could still be resolved. As a result, the safe-haven greenback held steady, Reuters reports.
Sterling was up 0.13% at $1.3393 against the Dollar at the time of writing, after touching its lowest level since 18th May on Monday. Against the Euro, it was broadly unchanged at 86.24 pence.
Markets are now turning their attention to Friday’s UK GDP figures, with a wave of new catalysts for Sterling expected in the week ahead.
A range of key economic releases is scheduled, including inflation and retail sales data, as well as a Bank of England interest rate decision. In addition, the important Makerfield by-election is set to take place on 18th June.
The by-election could open the door for Greater Manchester Mayor Andy Burnham, the Labour Party candidate, to return to Westminster. A victory for him could trigger a leadership contest within the party, potentially positioning him as a successor to Prime Minister Keir Starmer and reviving uncertainty around UK fiscal policy.
At present, markets appear to be in a holding pattern, with relatively little UK political news over recent weeks as attention builds around the upcoming by-election. Yet once that event passes, a series of broader questions around UK leadership and policy direction are likely to come into focus.
As a result, Sterling could come under pressure due to rising political uncertainty.
The Bank of England’s interest rate decision is also due on 18th June. Money markets are currently pricing in around a 90% chance that rates will remain unchanged, although investors will be closely watching for any signals about the future path of monetary policy.