Pound plunges as traders bet against rate rise

By the Editorial Team · Thursday, June 25, 2026

The British pound fell to its lowest level this year against the U.S. dollar as investors reduced expectations for imminent Bank of England interest rate hikes amid easing tensions in Iran and falling oil prices. This decline reflects a cautious outlook on monetary policy and economic conditions, as the central bank signals a pause in rate increases while inflation moderates.

The British pound declined to its lowest level this year amid shifting market expectations regarding Bank of England interest rate increases. Sterling weakened by 0.4% against the U.S. dollar to $1.316, marking its lowest point since November. This depreciation reflected traders scaling back bets that monetary policymakers would raise interest rates in response to the conflict in Iran.

Money markets previously indicated a near certainty of a rate hike this year, but the probability has declined markedly. Current projections show a 92% chance of a rate increase by the end of 2026, yet investors no longer fully price in an imminent rise in borrowing costs. This change in outlook follows a notable drop in oil prices after progress in peace talks between the United States and Iran in Switzerland.

Brent crude, the global oil benchmark, has fallen approximately 15% since mid-June, when U.S. President Donald Trump announced an agreement to end the war. The price of Brent crude surged as high as $126 per barrel in April when the conflict resulted in the closure of the Strait of Hormuz, a strategic chokepoint for about one-fifth of the world’s oil and gas shipments. Following the signing of the peace deal at the Palace of Versailles last week, President Trump highlighted the market impact, stating “Oil down, stocks up.” Brent fell by 4.6% to $73.53 per barrel, approaching its pre-conflict level of $72.48.

The pound’s decline also coincided with the Bank of England’s cautious stance on interest rates amid inflationary pressures linked to the Iran war. The central bank has held the base rate steady at 3.75% through its last four meetings, signaling a pause while assessing evolving economic conditions. Inflation surged to 3.3% in March, partly driven by higher petrol prices, but eased to 2.8% in April and May. Speaking on Tuesday, Monetary Policy Committee member Professor Alan Taylor endorsed an “extended hold” on interest rates as a prudent response to current inflation trends.

In addition to currency-market reactions to oil and monetary policy developments, the pound faced broader headwinds from a global technology sector sell-off impacting stock markets this week. These combined factors contributed to sterling’s retreat, underscoring investor caution amid geopolitical, economic, and market uncertainties.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.