* Pound rises on Iran war de-escalation expectations
* BOE rate hike expectations fade after Trump signals
possible end to conflict
* Gilt yields fall sharply
LONDON, April 1 (Reuters) – The British pound rose
against the dollar on Wednesday as investors unwound some bets
for a stronger U.S. currency on expectations that an end to the
Iran war could be near, although markets remained on alert for
further updates.
U.S. President Donald Trump is due to address the nation at
9 p.m. EDT on Wednesday (0100 GMT on Thursday) to provide an
“important update” on Iran. On Tuesday, Trump said the U.S.
could end its military campaign within two to three weeks.
“Markets are making another attempt at playing the
de-escalation trade,” said ING FX strategist Francesco Pesole.
The pound was last up 0.6% against the dollar to
$1.3308, adding to a 0.3% gain from the day before.
DOLLAR SAFE HAVEN
The dollar has strengthened since the outbreak of the war,
given its reliability as a safe haven and the U.S., as an energy
exporter, is relatively better positioned to handle higher
energy prices, especially compared with economies such as
Britain, which imports energy.
Against the euro, the pound was up about 0.2% at
87.14 pence.
Danske Bank FX analyst Kirstine Kundby-Nielsen said the
pound could ease against the euro if the situation in Iran
eased, but also warned that, should it escalate and risk
appetite really take a hit, the pound could also lag.
“It’s very much two forces at play. It’s a bit tricky,” said
Kundby-Nielsen.
BOE HIKE EXPECTATIONS FADE
Market expectations for rate hikes from the Bank of England
have been scaled back after Trump signalled the war could end
soon.
Energy prices have eased slightly, although Brent crude
futures still trade above $100 per barrel.
Interest rate futures were almost fully pricing in two
quarter-point rate hikes by the BoE by the end of 2026, compared
to over three rate hikes in March. They had been expected to cut
interest rates twice in 2026 prior to the outbreak of the Middle
East war.
Two-year gilt yields, which are sensitive
to changes to interest rate expectations, were down 5.5 bps to
4.322%.
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