The British Pound remained subdued against the US Dollar on Monday, as investors stayed cautious ahead of this week’s Bank of England (BoE) meeting and amid persistent geopolitical tensions stemming from the ongoing Israel-Iran conflict.
Sterling inched up to $1.359, recovering slightly after sliding as much as 0.7% to $1.3518 on Friday, when heightened risk aversion prompted a move into the safe-haven Dollar following Israeli airstrikes on Iran.
“The Pound is trading largely in line with its relative sensitivity to risk, so a little bit more risk sensitive than the Euro,” said Nick Rees, head of macro research at Monex Europe.
The single currency edged up by 0.18% against the Pound, reaching 85.26 pence. Meanwhile, the greenback held steady on Monday as global equities ticked higher and oil prices retained most of last week’s gains amid escalating tensions in the Middle East, Reuters reports.
Soaring oil prices are adding pressure to the inflation outlook, complicating the task for central banks already navigating the combined impact of Trump-era trade tariffs and their potential drag on global economic growth.
“We do not want another big stagflationary shock and that's exactly what it looks like this could turn into. Markets should be pricing that in,” Rees went on to add.
Investors will be watching closely for any developments from bilateral talks with the US during the Group of Seven (G7) summit in Canada this week.
At the same time, the Bank of England is one of several central banks scheduled to meet, with markets awaiting its decision on interest rates.
Money markets anticipate the Bank of England will hold interest rates steady at 4.25% on Thursday, while pricing in about two additional quarter-point cuts by December, with the next likely in September.
The Pound has been pressured by a string of weak UK data last week, including disappointing figures on manufacturing, employment, and economic growth.
Analysts say Chancellor Rachel Reeves’ spending review last Wednesday did little to boost growth prospects but increased the likelihood of potential tax hikes later this year.
Despite these challenges, Sterling has still managed to rise more than 8% against the Dollar so far in 2025.