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Pound dips against dollar with mounting expectations of bank interest rate rise - YAHOO FINANCE
The pound fell slightly against the dollar (GBPUSD=X) and euro on Tuesday morning as tensions remain high in the Middle East and the latest PMI reports give a read on the economy.
Sterling fell 0.2% against the dollar to the $1.34 mark. The dollar index (^NYICDX), which tracks the greenback against a basket of six currencies, also pulled 0.2% lower.
Traders are in a holding pattern as state of the relationship between the US and Iran remains unclear.
On Monday, Trump delayed strikes on Iranian power plants, having given Iran a 48-hour deadline to restore trade through the Strait of Hormuz, saying Washington had productive conversations with Tehran.
But Tehran denied that it has been in touch with US negotiators, accusing Washington of price manipulation.
Since then, there have been reports of calls between Iran's foreign minister, Abbas Araghchi and US envoy Steve Witkoff.
Reports of the negotiations have sent oil prices on a wild ride, stoking worries about potentially high inflation on energy bills.
On Monday, swap traders ramped up their bets on interest rate rises by the Bank of England this year. Forecasts predict four quarter-point increases by the end of 2026 rather than a bank rate hold at its current level of 3.75%.
Meanwhile, the latest S&P PMI reports for the UK have indicated private sector growth slowed considerably in March. The latest release showed demand has weakened, cost pressures have picked up, and the pace of job cuts has accelerated.
The acceleration in cost growth in the manufacturing sector was especially severe, being the sharpest since the depreciation of sterling following Black Wednesday in 1992.
“This presents a conundrum for the Bank of England. The conflict is pushing up prices while also weighing on demand,” said Jake Finney, senior economist at PwC.
He added: “The key judgement for Monetary Policy Committee members will be how long the conflict is likely to last and whether higher energy prices will trigger a broader resurgence in inflation pressures.
“With the labour market now softer than it was at the start of the 2022 inflation spike, the risk of second-round effects is lower. Even so, the prospect of near-term rate cuts has all but faded.”
Sterling also fell against the euro (GBPEUR=X) to the 1.156 mark.
