British pound treads water amid uncertainty about Iran peace talks

The pound was little changed on Thursday as markets remained focused on the uncertain outcome of U.S.-Iran peace talks.

Israel and Lebanon agreed to implement a ceasefire to end hostilities, the Trump administration said on Wednesday, bolstering hopes of a broader deal.

But that came after Iran earlier struck Kuwait's airport and the U.S. military carried out strikes near the Strait of Hormuz, underscoring how shaky the weeks-long U.S.-Iran ceasefire has become.

Sterling GBP=D3 was treading water at $1.342 as traders waited for further developments, and oil prices were also roughly flat.

Against the euro EURGBP=D3 the pound was also flat on the day at 86.48 pence.

Britain's currency has been pulled in different directions since the start of the Iran war and is down around 0.5% since February 27 against the dollar but up roughly 1.5% versus the euro.

The U.S. dollar has rallied during the moments of high uncertainty, reflecting its safe-haven status.

Political uncertainty, with British Prime Minister Sir Keir Starmer under threat from within his own party, and shifting bets on Bank of England rate hikes have also caused the pound to waver.

Yet the economy has held up relatively well so far, with 0.6% growth in the first quarter, although economists have some doubts about the accuracy of the figures given seasonal distortions, and expect growth to slow.

The euro zone economy, meanwhile, grew just 0.1% in the first quarter.

Money markets on Thursday were pricing in around 47 basis points of Bank of England rate hikes this year, meaning traders think it likely the central bank will raise rates twice by the end of December.

Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

-Reporting by Harry Robertson; Editing by Susan Fenton/Reuters