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The Iran talks are at an impasse as Sterling struggles to find direction

The British pound has not changed much against the euro and dollar on Wednesday. Investors are still 'focused' on the conflict in?Middle East and the effects of a prolonged war on monetary policies.

The talks to end the conflict are at a standstill. On Wednesday, an Iranian missile strike damaged Kuwait's Airport and the U.S. Military carried out strikes near Strait of Hormuz.

Brent crude futures traded at their highest levels in a week on Wednesday.

The United States is more vulnerable to rising fuel prices than Britain because of its greater dependence on imported energy. Prices have fallen from their late April highs but remain well above the levels they were before the U.S. and Israeli attacks on Iran in February that triggered the war.

The pound last fell by about 0.1% to $1.3447. This is within the middle of its recent range.

The?sterling exchange rate against the euro was unchanged at 86.34 cents.

BOE RATE INCREASE PUSHED BACK

Investors bet that the Bank of England will wait to raise rates. They have also lowered their expectations of future rate hikes since the beginning of the war.

Money market futures do not fully price in a quarter point rate hike until September, and just under two are priced by the end of the calendar year.

The market has given Bank of England the opportunity to wait it out as long as Strait of Hormuz opens soon, said Gustav Helgesson.

The Bank of England can sit out this situation and, from a rate differential perspective, it should weaken sterling.

Helgesson said that if the war ended, the pressure on public finances would be relieved, and this could have a positive effect on sterling.

Investors are beginning to expect rate increases from the Federal Reserve, given the recent strong U.S. economic data and rising price pressures.

(source: Reuters)