Pound holds firm as soft UK inflation leaves rate-hike bets intact

Meanwhile, crude oil prices jumped more than 4% to near six-week highs on mounting concerns about disruptions to key Middle Eastern supply routes because of escalating hostilities between the U.S. and Iran and threats to shipping by the Iran-backed Houthi militia in Yemen.

The pound is one of the better-performing G10 currencies so far this year, despite the UK's status as a net energy importer. Sterling has lost 0.8% in value against the dollar so far in 2026, but is some way ahead of laggard currencies like the Japanese yen JPY=, which has lost 4%, or the Swedish crown SEK=, which is down 5%.

"GBP risk premium is moving higher and, in an environment where the geopolitical backdrop remains fragile, we think GBP/USD is vulnerable to a move towards $1.32," BofA Global Research analysts said in a note.

The pound held steady against the dollar on Wednesday as a softer-than-anticipated inflation reading did little to alter market expectations for interest rate hikes later this year, while oil prices jumped as geopolitical uncertainty persisted.