FX.co ★ Sterling Weakens Amid Weak PMI and Middle East War Fallout

The British pound slipped to $1.34 as investors reacted to weaker-than-expected PMI data and mounting tensions in the Middle East, which have intensified fears of a potential energy shock. UK business activity expanded at its slowest pace since September 2025, with the war involving Iran undermining growth and driving inflation sharply higher. Manufacturing input costs rose at their fastest rate since Black Wednesday in 1992.

At the same time, markets remained fixated on developments in the conflict. On Monday, US President Donald Trump announced a five-day postponement of planned strikes on Iran’s energy infrastructure, citing "positive talks" in progress — a claim Tehran rejected, although reports indicated that indirect negotiations were taking place.

The recent spike in energy prices has prompted investors to markedly reprice the outlook for monetary policy. Market participants now expect several Bank of England rate hikes this year, a sharp turnaround from the pre-conflict consensus, which had anticipated two cuts.