Sterling slides as Trump vows more strikes on Iran, driving up dollar

By Harry Robertson

LONDON, April 2 (Reuters) - The pound fell sharply on Thursday after U.S. President Donald Trump vowed more aggressive strikes on Iran and gave little reassurance about the reopening of the Strait of Hormuz, sending oil prices surging and investors flocking to the U.S. dollar.

Sterling GBP=D3 was last down 0.74% at $1.3208, just a day after rising 0.6% on hopes that the war could soon be winding down. It earlier fell as much as 0.95%.

The drop was largely a function of a jump in the dollar, which is seen as a safe-haven asset. The index measuring the greenback against a basket of other major currencies rose 0.59% =USD.

Britain is also highly exposed to energy imports and investors remain nervous about the country's fragile public finances. Yields on British government bonds jumped on Thursday as energy prices surged.

"Gilt yields are back in uncomfortable territory for the government, and for sterling," said Nick Rees, head of macro research at Monex Europe.

In a televised address on Wednesday, Trump said military operations would be intensified in the next two to three weeks and offered no concrete timeline for ending the conflict.

"We're going to hit them extremely hard over the next two to three weeks," he said. "We're going to bring them back to the Stone Ages where they belong."

Trump said the U.S. did not need the Strait of Hormuz and again challenged allies who depend on Gulf oil to work towards reopening it.

Oil prices jumped after Trump's speech and stock markets and equity futures tumbled. Brent crude LCOc1, the global benchmark, was last up 7.8% at $109.11 a barrel.

"Risk aversion is following the typical playbook that we've seen throughout the conflict," said Michael Brown, senior research strategist at Pepperstone.

"Crude rallying, and taking everything but the dollar lower in turn, with the greenback remaining the only real safe haven."

Sterling dipped against the euro on Thursday, with the euro zone currency up 0.18% at 87.27 pence EURGBP=D3.

The pound fell 1.9% against the dollar in March as the war raised concerns about an energy shock hitting the economy.

Meanwhile, the euro fell 2.2% against the U.S. currency in a sign that almost all European economies are expected to slow.