On Tuesday, the British pound fell 0.4% against the US dollar, giving back some of the gains from the previous day, as traders and investors closely monitored further developments in the Middle East situation. Although U.S. President Trump stated that productive talks were held with Iranian officials regarding the Middle East conflict, Iran denied any direct negotiations with the U.S., causing the pound to fail in continuing its rebound.
As the conflict in the Middle East intensifies, signs of sluggish British economic activity are gradually emerging. The growth rate of business activity in March reached its lowest point in six months, while the increase in manufacturing costs was the largest since 1992.
Economic Impact and Currency Policy Outlook
As the conflict continues, the UK economy may face greater pressure than other countries. The market generally anticipates that the Bank of England will take more actions to address inflation risks, at least raising interest rates twice. Nonetheless, due to a lack of further economic data, policymakers may maintain a wait-and-see approach, with April PMI data becoming crucial for the next round of monetary policy decisions.
