The Pound Sterling (GBP) weakens against its major peers on Tuesday, falling roughly 0.3% to trade near 1.3360 against the US Dollar (USD) during the European session. The GBP/USD pair extends losses as risk sentiment deteriorates amid escalating tensions in the Middle East involving the United States, Israel, and Iran. The heightened geopolitical uncertainty has reduced appetite for risk-sensitive assets, weighing on the British currency.
Rising energy prices driven by the conflict have intensified concerns about renewed inflationary pressures in the United Kingdom (UK). Higher oil costs could squeeze household budgets and dampen consumer spending, adding fresh challenges to the domestic economic outlook.
Addressing the situation, Bank of England (BoE) Monetary Policy Committee member Alan Taylor stated at a conference hosted by Norway’s central bank that it remains premature to fully assess the impact of elevated oil prices on UK inflation and growth. However, he emphasized that policymakers are closely monitoring developments, according to Reuters.
Mounting fears of persistent inflation due to higher energy prices have led traders to scale back expectations of aggressive monetary easing by the BoE. Market participants now price in less than a 50% probability of a rate cut in March, a notable shift from nearly 80% odds seen before the start of the week.
Meanwhile, the US Dollar continues to benefit from increased safe-haven flows amid the geopolitical tensions. The US Dollar Index (DXY), which measures the Greenback against six major currencies, holds firm near a six-week high around 98.75 at the time of writing.
Looking ahead, market participants will closely watch the release of February’s US Nonfarm Payrolls (NFP) report on Friday. The employment data is expected to provide fresh insight into the Federal Reserve’s policy trajectory and could influence near-term direction in currency markets.
