The British pound weakened against a basket of major currencies during European trading on Thursday, resuming its losses against the US dollar after a two-day rebound. Sterling moved back toward its lowest level in four weeks as demand for the US dollar strengthened on renewed safe-haven buying following the latest military exchanges between the United States and Iran.

The Bank of England will conclude its latest monetary policy meeting later today, with markets widely expecting policymakers to leave interest rates unchanged for a fifth consecutive meeting.

The Price

The British pound fell 0.2% against the US dollar to $1.3341, down from the session opening level of $1.3369. The pair reached an intraday high of $1.3376.

Sterling gained 0.6% against the US dollar on Wednesday, marking its second consecutive daily advance as it continued to recover from a four-week low of $1.3274.

US dollar

The US Dollar Index rose 0.15% on Thursday, rebounding from a one-week low as the greenback strengthened against a basket of major and minor currencies.

The rebound was driven by renewed safe-haven demand for the US dollar as military exchanges between the United States and Iran intensified, fueling concerns that the conflict could spread further across the Middle East.

Latest developments in the Iran conflict

Military hostilities resumed after the United States launched a new wave of airstrikes lasting around two hours and targeting dozens of Islamic Revolutionary Guard Corps positions.

The US strikes came in response to an Iranian ballistic missile attack targeting American military bases in Jordan.

Iran confirmed that it had targeted US bases in Jordan and said it would continue responding to any attacks against its territory.

The conflict expanded geographically after a US-owned gas tanker was targeted at Egypt's Damietta Port.

Regional tensions escalated further as joint US and Saudi strikes against Iran-backed groups in Iraq continued, increasing concerns that the confrontation could spread to additional fronts.

Diplomatic efforts remain stalled, with negotiations over de-escalation and the future of navigation through the Strait of Hormuz still at an impasse, reducing the likelihood of a new ceasefire in the near term.

Bank of England

The Bank of England is set to conclude its monetary policy meeting later today, with policymakers widely expected to leave the benchmark interest rate unchanged at 3.75%, its lowest level since December 2022. If confirmed, this would mark the fifth consecutive meeting with no change in borrowing costs.

The Bank is scheduled to announce its interest rate decision, monetary policy statement, and the vote split at 11:00 GMT.

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

Outlook for the British pound

At Economies.com, we expect that if the Bank of England and Governor Andrew Bailey deliver a less hawkish message than markets anticipate, expectations for additional UK rate hikes this year are likely to decline, putting further downward pressure on the pound sterling.