The British pound climbed against the US dollar in early European trading on Tuesday, with GBP/USD trading around 1.3355. Renewed expectations that the Bank of England will tighten monetary policy later this year to curb inflation lent support to sterling.
Those expectations strengthened after BoE Chief Economist Huw Pill indicated that interest rates would likely need to rise to prevent inflation from becoming entrenched. Futures markets shifted to price in a possible rate increase as soon as the September or November policy meetings, though Morningstar noted that probability remained below 50%. The mood also reflected a broader reassessment of UK monetary policy amid elevated inflation risks.
The US dollar, meanwhile, held firm after a risk‑off start to the week. The US Dollar Index hovered above the 101.00 handle as investors awaited the release of the June US Consumer Price Index report. Annual CPI inflation is forecast to ease to 3.8% from 4.2% in May. A lower‑than‑expected reading could weaken the case for further US rate hikes and put pressure on the greenback. Testimony from Federal Reserve official Kevin Warsh later in the day also attracted market attention.
Geopolitical tensions remained a key driver. The United States conducted additional airstrikes on Iran for a third consecutive day, with Iranian media reporting explosions on Kish and Qeshm islands and in Bushehr and Bandar Abbas. Iran said it struck US military sites in Kuwait, Bahrain, and Jordan, and targeted two oil supertankers in the Strait of Hormuz. The escalating conflict sent crude oil prices sharply higher; West Texas Intermediate surged nearly 9% on Monday and extended gains to trade around $80 per barrel on Tuesday, adding to global inflation concerns.
Other currencies showed varied moves. EUR/USD consolidating below 1.1400 after a 0.3% decline, with traders eyeing a speech by ECB President Christine Lagarde and her meeting with US Treasury Secretary Scott Bessent. The Japanese yen traded sideways above 162.00 for USD/JPY. The New Zealand dollar outperformed after Reserve Bank of New Zealand Chief Economist Paul Conway said additional easing would be needed if oil‑driven inflation proves persistent, pushing NZD/USD up roughly 0.8% to near 0.5800. The Indian rupee weakened sharply, with USD/INR climbing to a fresh seven‑week high near 96.13, pressured by rising crude oil costs and higher US Treasury yields.
