FX.co ★ Pound Rebounds as Easing Middle East Tensions Lift Risk Sentiment

The pound climbed to $1.334, rebounding from last week’s three-week low, as easing tensions between the US and Iran and a sharp drop in oil prices improved risk appetite. Brent crude pulled back from two-month highs after Washington and Tehran paused hostilities and resumed diplomatic contacts, helping to alleviate inflation worries and prompting money markets to slightly pare back expectations for further policy tightening. Attention now turns to the Bank of England’s policy decision later this week, with policymakers widely expected to leave interest rates unchanged at 3.75%. That view has been reinforced by recent inflation data, which showed consumer price growth slowing to a 15-month low of 2.6% in June, undershooting the BoE’s forecasts. In addition, a lagged pass-through of higher wholesale energy costs to regulated household bills has kept UK inflation below that of both the US and the euro area, where the European Central Bank is still anticipated to deliver another rate increase in September or October.