The pound fell against the dollar on Monday as the stock market sold heavily, with traders shifting their bets to a forecast of interest rate hikes as a result of the situation in the Middle East.
Read more: London plunges into correction territory as Trump gives Iran ultimatum
The market is now betting on four quarter point Bank of England interest rate hikes this year as a response to potential inflation caused by the conflict between Iran and the US and Israel. Before the start of the conflict, the market had priced two interest rate cuts.
Sterling traded 0.5% lower against the dollar (GBPUSD=X) on Monday, and was below the $1.33 mark.
The dollar index (DX-Y.NYB), which tracks the greenback against a basket of six currencies, rose 0.3%.
Last night, prime minister Keir Starmer and president Donald Trump held a 20-minute phone call, discussing the halting of trade through the Strait of Hormuz. The passage plays host to about 20% of the world’s oil supply as well as a similar proportion of liquefied natural gas.
Read more: Oil prices gain as Trump and Starmer discuss need to reopen Hormuz
Over the weekend, Trump had issued a 48-hour deadline for Iran to allow trade to continue.
The blockage of the movement of oil and gas supplies in turn has stoked fears of inflation, with the potential for ballooning energy prices.
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