LONDON, July 13 (Reuters) - The pound fell slightly on
Monday as currency markets wavered in response to renewed
hostilities between the U.S. and Iran, which pushed up oil
prices and fanned inflation fears.
U.S. and Iranian forces exchanged heavy missile and drone
attacks over the weekend and into Monday, with Tehran striking
U.S. facilities in the region and saying it had again closed the
Strait of Hormuz.
The U.S. military said it had struck Iranian air defence
systems, coastal radar sites, and other sites. Oil prices rose,
with Brent crude last up 2% at $77.60.
The U.S. dollar, which investors consider a safe
haven in times of uncertainty, climbed against certain
currencies including the pound.
Sterling, which is largely driven by the dollar,
was last 0.1% lower at $1.339.
The euro rose 0.2% to 85.38 pence, after falling
to its lowest in a year against the pound last week.
"The spill-over effects into the foreign exchange market remain
relatively modest so far," said Lee Hardman, senior currency
analyst at MUFG.
"A significantly higher price of oil has the potential to be a
more powerful bullish catalyst for the U.S. dollar now that the
Fed has indicated recently that it is considering raising rates
in response to upside inflation risks."
Traders have increased their bets on U.S. Federal Reserve
rate hikes, which has supported the dollar.
Money markets were pricing in 37 basis points of monetary
tightening from the Fed this year, versus 33 bps for the Bank of
England.
The pound has remained relatively strong this year, however,
as the UK economy has held up slightly better than expected.
Sterling has slipped 0.6% in 2026 versus the dollar compared
to a 2.7% fall in the euro.