Sterling pauses after four-week rally as investors assess Iran sanctions

Summary

The British pound edged lower against the US dollar on Monday after a four-week rally, as investors assessed the potential impact of US sanctions on Iran and its trading partners.

Sterling remains one of the better-performing Group of Seven currencies this year, supported by expectations around Bank of England interest rates and signs of resilience in the UK economy.

LONDON, August 24, 2026 — The British pound slipped against the US dollar on Monday, pausing after a four-week rally as investors weighed the potential implications of US sanctions on Iran and its trading partners.

Sterling fell nearly 0.1% to $1.3633 by 0956 GMT, after reaching a more than six-month high of $1.3675 on Friday. Against the euro, the pound was broadly unchanged at 85.57 pence.

The pound has been among the best-performing Group of Seven currencies this year. Its performance has been supported by market expectations that the Bank of England could raise interest rates toward the end of the year, alongside better-than-expected resilience in the UK economy.

Market pricing showed traders expecting benchmark interest rates to rise by at least 25 basis points by December, according to LSEG data. Most economists, however, expect no change. A shift in market pricing toward that consensus could weigh on sterling.

Maelle Quillevere, an economist at UBS Global Wealth Management, said resilient growth and easing domestic inflation pressures supported the view that there was no need to tighten monetary policy this year. She expects rate cuts could potentially resume in 2027.

Recent productivity data have also offered some support to the UK economic outlook. Economists at the Resolution Foundation said economic productivity was beginning to show signs of sustained improvement, following data released the previous week that also pointed to strength among businesses and consumers.

UK political and fiscal developments are also being watched by investors. Prime Minister Andy Burnham told European Council President Antonio Costa that London should be bolder in pursuing closer ties with the European Union, ahead of a UK-EU summit later this year.

The government’s first budget in October will be important for investor confidence in Britain. The budget comes as concerns about elevated sovereign debt levels and higher borrowing costs have added pressure to bond markets in the United States.

Sterling’s weakness against the dollar on Monday also reflected investor concerns about the potential implications of US sanctions on Iran and its trading partners, including the possibility of retaliation from Tehran.

US Treasury Secretary Scott Bessent was expected to hold a press conference at 1700 GMT on Monday, adding to the market’s focus on developments around the sanctions.

Why this matters

• Sterling remains sensitive to rate expectations: Market pricing for Bank of England interest rates continues to be an important factor for the pound’s direction.
• Iran sanctions add uncertainty: Investors are assessing the potential economic and market implications of US measures against Iran and its trading partners.
• UK economic resilience provides support: Improving productivity indicators and signs of strength among businesses and consumers are helping ease some concerns about a sluggish economy.
• The October budget is a key focus: Investors will be watching the government’s fiscal plans as concerns over sovereign debt and borrowing costs remain in focus.

FAQs

Q1: Why did sterling retreat on August 24?

Sterling fell nearly 0.1% to $1.3633 as investors assessed the potential implications of US sanctions on Iran and its trading partners, including the possibility of retaliation from Tehran.

Q2: What was sterling’s recent high?

The pound reached a more than six-month high of $1.3675 on Friday, before easing to $1.3633 by 0956 GMT on Monday.

Q3: What is supporting the pound this year?

Sterling has benefited from market expectations that the Bank of England could raise interest rates toward the end of the year, as well as better-than-expected resilience in the UK economy.

Q4: What are traders expecting from UK interest rates?

LSEG data showed traders see benchmark interest rates rising by at least 25 basis points by December, although most economists expect no change.

Q5: Why is the October UK budget important?

The government’s first budget in October will be important for investor confidence in Britain amid concerns about elevated sovereign debt levels and higher borrowing costs.