The British pound edged higher against a basket of major currencies in European trading on Wednesday, attempting to recover from a one-week low against the US dollar as the greenback eased slightly amid continued military exchanges between the United States and Iran.

The latest rise in global oil prices has renewed inflation concerns among Bank of England policymakers and strengthened expectations for a UK interest rate hike this year. Investors are awaiting key UK inflation data for June later today to reassess those expectations.

The Price

The pound rose 0.1% against the US dollar to $1.3390, up from the opening level of $1.3375. It touched an intraday low of $1.3372.

Sterling lost 0.4% against the dollar on Tuesday, marking its fourth consecutive daily decline, and fell to a one-week low of $1.3359. The currency came under pressure from continued military tensions between the United States and Iran, as well as comments from the new UK prime minister about allowing British bases to be used in US airstrikes on Iranian territory.

US dollar

The US Dollar Index fell around 0.1% on Wednesday, retreating from a one-week high amid correction and profit-taking, reflecting a slight slowdown in the US currency against a basket of major and minor peers.

Global oil prices

Oil prices rose more than 1% on Wednesday, extending gains for a second consecutive session to reach six-week highs as concerns over supply disruptions in the Middle East intensified amid continued military escalation between the United States and Iran, along with Houthi threats targeting Saudi-linked ships and oil tankers.

Iran conflict update

The US military announced the completion of its eleventh consecutive night of airstrikes against Iranian military targets.

The strikes targeted command centers, logistics facilities, drone storage sites, and naval equipment as part of efforts to protect international shipping through the Strait of Hormuz.

Iran said it would continue its military response, including attacks on US military sites and bases across the region.

US President Donald Trump warned that a suspected Iranian nuclear site in the Jabal Al-Fas area could soon face a major military strike.

Tehran responded that any attack on its nuclear facilities would officially mark an expansion of the war across the entire region.

Mediation efforts led by several regional parties, including Pakistan and Qatar, remain underway in search of a ceasefire, although no formal agreement or new truce has yet been announced.

UK interest rates

According to global interest rate futures markets, traders are currently pricing in around a 30% probability that the Bank of England will raise interest rates at its July meeting.

UK inflation data

Investors are awaiting key UK inflation data for June later today, which could reshape expectations for British interest rates and significantly influence the Bank of England's monetary policy outlook.

The headline Consumer Price Index is due at 06:00 GMT and is expected to rise 2.7% year-on-year in June, easing from 2.8% in May. Core inflation is forecast to slow to 2.5% from 2.6%.

Pound outlook

We expect that if UK inflation data comes in below market expectations, the probability of further Bank of England rate hikes this year will decline, adding renewed downward pressure on the British pound.