Pound Strengthens, US-Iran Peace Sentiment Drives Risk-On
The British pound strengthened past US$1.34 and reached its highest level since early June, supported by improving global risk sentiment after the United States and Iran reached a preliminary agreement to end a three-month conflict. This reduced demand for the US dollar as a safe-haven asset and gave riskier currencies like the pound room to strengthen.
The preliminary agreement includes the lifting of the US blockade and the reopening of the Strait of Hormuz, a vital route for global energy shipments. If the agreement is signed in Switzerland on Friday and Hormuz is fully reopened, pressure on oil prices could ease. Consequently, concerns about energy inflation could also be alleviated.
However, the market has not completely dismissed geopolitical risks. Some details of the agreement remain pending, particularly regarding Iran's nuclear program. Furthermore, Israeli National Security Minister Itamar Ben-Gvir stated that the agreement is not binding on Israel, so the risk of regional tensions has not completely disappeared.
Domestically, investor focus now shifts to the Bank of England's decision on Thursday. The decision is expected to be closely watched as policymakers must balance inflationary pressures with a weakening labor market and slow economic growth. This situation makes the BoE's policy direction difficult to predict.
Traders are now only pricing in one BoE interest rate hike this year. This means that, although the pound is supported by risk-on sentiment, the room for upside still depends on whether the BoE signals a hawkish stance or becomes more cautious as the UK economy weakens. (asd)
Source: Newsmaker.id
