Pound Drops As Iran Tensions Rise

The pound fell against the dollar due to rising tensions between the U.S. and Iran. British Prime Minister Keir Starmer urged Iran to return to negotiations. While UK business activity modestly expanded, concerns about energy prices and a potential BoE rate cut influenced the market.

The pound experienced a decline against the dollar on Monday, driven by investors' flight to the safe-haven currency amid renewed Middle Eastern tensions. The pound dropped to $1.33795, reaching its lowest since late May, as concerns over an Iranian response to U.S. military actions intensified.

After conversing with U.S. President Donald Trump, British Prime Minister Keir Starmer emphasized the need for Iran to resume negotiations. The focus remained heavily on oil prices, which experienced a temporary surge of up to 5.7% before stabilizing. Meanwhile, the UK's expanded business activity yielded little impact on the currency's performance.

In the financial realm, the Bank of England decided to maintain interest rates at 4.25% but hinted at economic vulnerabilities, notably a weakening labor market. A 6-3 vote indicated the possibility of future rate cuts, reflective of the market's 'doveish' outlook, with traders largely split on anticipated outcomes for the upcoming BoE meeting.

(With inputs from agencies.)