Sterling rises against dollar as de-escalation trade takes hold
By Samuel Indyk
LONDON, April 1 (Reuters) - The British pound rose against the dollar on Wednesday as investors unwound some bets for a stronger U.S. currency on expectations that an end to the Iran war could be near, although markets remained on alert for further updates.
U.S. President Donald Trump is due to address the nation at 9 p.m. EDT on Wednesday (0100 GMT on Thursday) to provide an "important update" on Iran. On Tuesday, Trump said the U.S. could end its military campaign within two to three weeks.
"Markets are making another attempt at playing the de-escalation trade," said ING FX strategist Francesco Pesole.
The pound GBP= was last up 0.6% against the dollar to $1.3308, adding to a 0.3% gain from the day before.
DOLLAR SAFE HAVEN
The dollar has strengthened since the outbreak of the war, given its reliability as a safe haven and the U.S., as an energy exporter, is relatively better positioned to handle higher energy prices, especially compared with economies such as Britain, which imports energy.
Against the euro EURGBP=, the pound was up about 0.2% at 87.14 pence.
Danske Bank FX analyst Kirstine Kundby-Nielsen said the pound could ease against the euro if the situation in Iran eased, but also warned that, should it escalate and risk appetite really take a hit, the pound could also lag.
"It's very much two forces at play. It's a bit tricky," said Kundby-Nielsen.
BOE HIKE EXPECTATIONS FADE
Market expectations for rate hikes from the Bank of England have been scaled back after Trump signalled the war could end soon.
Energy prices have eased slightly, although Brent crude futures LCOc1 still trade above $100 per barrel.
Interest rate futures were almost fully pricing in two quarter-point rate hikes by the BoE by the end of 2026, compared to over three rate hikes in March. They had been expected to cut interest rates twice in 2026 prior to the outbreak of the Middle East war.
Two-year gilt yields GB2YT=RR, which are sensitive to changes to interest rate expectations, were down 5.5 bps to 4.322%.
