By Samuel Indyk
LONDON, April 13 (Reuters) – The British pound fell against a broadly stronger dollar on Monday after talks between Iran and the U.S. broke down and the U.S. Navy said it would blockade the Strait of Hormuz, sending energy prices surging.
President Donald Trump said on Sunday the U.S. Navy would start blockading the Strait of Hormuz after the two sides failed to reach a deal to end the war, jeopardising a fragile two-week ceasefire. U.S. Central Command said forces would begin implementing the blockade of all maritime traffic entering and exiting Iranian ports from 10 a.m. ET (1400 GMT) on Monday.
Sterling has tended to suffer against the dollar when tensions between Washington and Tehran flare, given Britain’s dependence on energy imports and the economy’s sensitivity to higher fuel costs.
“Even if we get a resolution to the war … we’re still likely to see lingering higher energy prices,” said Tommy von Brömsen, FX strategist at Handelsbanken.
“I think the pound and the euro are not in a very good seat right now.”
The pound was last down 0.2% at $1.3429 after rising more than 2% last week, its biggest weekly gain since March 2025. Against the euro, sterling was little changed at 87.02 pence.
BANK OF ENGLAND IMPACT
The war in the Middle East has sent energy prices sharply higher, stoking inflation concerns and adding to worries about global growth. Brent crude futures were up around 8% on Monday, trading above $102.50 per barrel.
Higher energy prices have pushed money market traders to price in interest rate hikes from the Bank of England, although most brokerages nL4N40L0ZW do not expect the central bank to raise borrowing costs in 2026.
BoE Governor Andrew Bailey nL1N40K0PI said earlier this month markets were getting ahead of themselves by betting on rate rises.
Money market futures imply almost two quarter-point rate increases in 2026. Before the war began, investors had expected the BoE to cut rates twice this year.
“The deterioration due to rising energy prices that you’ve seen in inflationary conditions, or short-term expected inflationary conditions, by the end of the year looks materially worse than it was,” said Moyeen Islam, senior sterling rates strategist at Barclays.
“I find it hard to think back that we can row back to pricing in cuts for 2026.”
(Reporting by Samuel Indyk. Editing by Mark Potter)