Sterling Hits Three-Week Low as Middle East Tensions Rise

Britain's pound sterling has hit a three-week low against the dollar as investors remain cautious about the conflict in the Middle East and sell-off in gilts. The pound fell to $1.3490, its lowest level since August 14, before rebounding slightly.

The dollar reached a two-week high as investors turned to the US currency amid growing concerns over an energy shock and diverging monetary policy paths across major economies. UK government bond yields have hit fresh 18-year highs, posing a challenge for finance minister John Healey ahead of his first budget on October 28.

Ebury's head of market strategy, Matthew Ryan, noted that one-month implied volatility in sterling has fallen to more than 12-year lows, but expects this trend to be short-lived due to brewing budget jitters. The Bank of England is expected to keep interest rates unchanged at 3.75% this month and markets are pricing in a quarter-point increase by the end of the year.