The British pound rose in European trading on Thursday against a basket of major and minor currencies, attempting to recover from a two-month low against the US dollar. Sterling was supported by a softer dollar and lower oil prices following the electronic signing of the preliminary peace agreement between the United States and Iran.

Recent UK inflation data showed easing price pressures on policymakers, reinforcing expectations that the Bank of England will leave interest rates unchanged at today's meeting for a fourth consecutive time.

Price action

GBP/USD today: The pound rose around 0.25% to $1.3320, up from an opening level of $1.3289, after touching an intraday low of $1.3285.

Sterling lost 1.0% against the dollar on Wednesday, its biggest daily decline of the year, and fell to a two-month low of $1.3262 following the Federal Reserves hawkish policy meeting.

US dollar

The US Dollar Index fell 0.2% on Thursday, retreating from a three-month high of 100.57 points as the greenback weakened against a basket of global currencies.

Alongside profit-taking activity, the dollar came under pressure as risk appetite improved following the signing of the preliminary peace agreement between the United States and Iran.

Global oil prices

Oil prices fell more than 0.5% on Thursday, extending losses for a sixth consecutive session and remaining on track to hit fresh three-month lows. The decline followed International Energy Agency forecasts pointing to a supply surplus next year after the US-Iran agreement.

US-Iran agreement

The US and Iranian presidents officially signed the preliminary peace agreement electronically.

Pakistani Prime Minister Shehbaz Sharif said: I am honored to announce today the electronic signing of the historic Islamabad Memorandum of Understanding between the United States of America and the Islamic Republic of Iran.

Sharif confirmed that the formal signing ceremony between the United States and Iran will take place in Switzerland on Friday.

US and Iranian diplomatic and security delegations have begun arriving at the Brgenstock resort in Switzerland to finalize the details of the historic agreement ahead of Fridays official signing.

Irans state news agency IRNA published photographs showing President Pezeshkian signing the memorandum of understanding between Iran and the United States.

Iran announced that the historic agreement has officially entered into force.

UK interest rates

UK inflation data released yesterday for May showed easing inflationary pressures on Bank of England policymakers.

Money markets currently price the probability of a Bank of England rate hike at todays meeting at 0%.

Bank of England

The Bank of England is set to conclude its policy meeting later today, with markets widely expecting policymakers to leave interest rates unchanged at 3.75%, the lowest level since December 2022, for a fourth straight meeting.

The interest rate decision, policy statement, and voting breakdown are due at 11:00 GMT.

Governor Andrew Bailey will hold a press conference at 11:30 GMT to discuss the outcome of the meeting, the inflation outlook, and the future path of UK interest rates.

Outlook for the pound

At Economies.com, we expect that if the Bank of Englands statement and Andrew Baileys comments prove more dovish than markets currently anticipate, expectations for multiple UK rate cuts in 2026 will increase, potentially placing additional downward pressure on the British pound.