LONDON, March 23 (Reuters) - The pound climbed on Monday

after President Donald Trump said the U.S. would postpone

strikes on Iranian power plants for five days, abandoning his

previous threat that had sent stocks tumbling and the dollar

surging.

Sterling was last up 0.59% against the dollar at

$1.342, after earlier falling more than 0.5% as investors

flocked to the dollar.

Trump's postponement sparked a rebound in stock markets, which

had been trading deeply in the red, and also alleviated some of

the pain in Britain's fragile bond markets.

Ten-year Gilt yields were last down 7 basis

points at 4.928%, having earlier risen to their highest level

since 2008 as markets priced in four 25 basis-point interest

rate hikes from the Bank of England this year. Yields rise as

prices fall and vice versa.

Traders were last betting on around 60 basis points of rate

hikes from the BoE in 2026, still a dramatic change from the two

cuts priced in before the war but down sharply from earlier in

the day.

The euro was down 0.3% against the pound at

86.48 pence. That in part reflected the fact that traders still

think the BoE will hike rates more than the European Central

Bank this year, boosting the relative appeal of the pound.

Trump posted on his Truth Social platform on Monday that the

U.S. and Iran had had productive conversations over the past two

days about a "COMPLETE AND TOTAL RESOLUTION OF HOSTILITIES IN

THE MIDDLE EAST".

However, Iran's Fars news agency said there was no direct

communication with the U.S. or through intermediaries.

"U.S. efforts to de-escalate tensions need Iranian

cooperation to be effective," said Ipek Ozkardeskaya, senior

analyst at Swissquote.

"How Iran responds will matter more than unilateral

announcements from Mr Trump. Hope is here, but uncertainties

persist."

Brent crude oil was last down around 8% at $103.60 a

barrel, alleviating some of the potential pain for the UK

economy, which is highly reliant on energy imports.

Nonetheless, energy prices remain more than 40% higher than

before the war, a spike that has caused fears among investors

about a slowdown in the British economy and a sharp rise in

inflation, which has weighed on the pound and hammered bonds.

British Prime Minister Keir Starmer has called for an

emergency meeting with senior ministers and BoE Governor Andrew

Bailey later on Monday to discuss the response to the energy

shock stemming from the war.