Sterling Slips Below 1.3550 as Middle East Strikes Reignite Inflation Fears

The GBP/USD pair slid toward 1.3530 during Thursday’s early Asian session as the British Pound came under pressure against the US Dollar. Renewed military action in the Middle East and the threat of shipping disruptions in the Strait of Hormuz have revived concerns over energy-driven inflation.

The US military confirmed a fresh wave of strikes against Iranian targets aimed at keeping the Strait of Hormuz open, according to The Guardian. Explosions were reported late Wednesday on Iran’s Qeshm Island, Bandar Abbas, and sites in Sistan-Baluchestan province. Iran’s top negotiator, Mohammad Bagher Ghalibaf, warned that Tehran has “no reason to adhere” to its memorandum of understanding with Washington if it sees no benefit, escalating geopolitical uncertainty.

Heightened tensions typically bolster safe-haven assets such as the Greenback, creating a near-term headwind for the pair. Market focus now shifts to the UK’s monthly GDP report and US Retail Sales data, both due later Thursday.

Domestically, attention is turning to Andy Burnham, who is expected to be formally named Prime Minister on July 20. His choice of finance minister will be closely scrutinized given the UK’s fragile public finances.

Meanwhile, money markets have aggressively repriced Bank of England expectations. Traders now fully price in a rate hike by the November policy meeting, with a second increase anticipated by April 2027, according to Reuters. Prior to the US-Iran escalation, the consensus had been for two rate cuts this year, as higher oil prices are expected to stoke inflationary pressures.

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