The British pound edged higher Wednesday as traders balanced Middle East oil supply risks against reports of potential global reserve releases.
Sterling rose 0.1% to $1.3430 against the dollar and gained 0.2% versus the euro, offering rare resilience across European currencies.
Rising energy costs threaten import-dependent economies. Oxford Economics estimates UK inflation could climb 0.4 percentage points if disruptions hit the Strait of Hormuz for two months.
“The UK is highly exposed to energy prices, raising fears of a material economic slowdown,” said Chris Beauchamp of IG Group.
Global tensions have temporarily shifted focus away from domestic pressures that weighed on sterling in recent weeks.
However, analysts at Bank of America warn markets may be underestimating election uncertainty, with Prime Minister Keir Starmer facing a difficult vote in May.
Oil prices climbed despite reports the International Energy Agency could release record reserves. Economists at Deutsche Bank suggested fuel duty freezes or temporary tax relief.
Meanwhile, tensions escalated as Iran launched strikes against Israel and regional targets, prompting warnings from Donald Trump of stronger action if oil shipments are disrupted.
