By Boluwatife Oshadiya | March 5, 2026
Key Points
- British pound rises to $1.3380 after early-week losses near three-month lollar weakens as reports emerge that Iran may discuss ending the war
- UK growth forecast for 2026 downgraded to 1.1% from 1.4%
Main Story
The British pound strengthened to around $1.3380 on Thursday, recovering from early-week declines that had pushed the currency close to three-month lows, as the US dollar softened amid reports that Iran may be open to negotiating an end to the ongoing war.
Currency markets entered a phase of cautious consolidation after the dollar retreated from recent highs, with investors closely monitoring geopolitical developments in the Middle East. The shift in sentiment followed reports that Iranian officials had signaled a willingness to discuss potential terms for ending the conflict.
According to the New York Times, operatives linked to Iran’s Ministry of Intelligence reportedly made indirect contact with the US Central Intelligence Agency shortly after coordinated US-Israel attacks began. Israeli officials have reportedly advised Washington to disregard the outreach for the time being.
Despite the pound’s recovery, markets remain cautious as geopolitical uncertainty continues to weigh on investor sentiment. Rising energy prices tied to the conflict are also creating new challenges for monetary policymakers.
The Bank of England now faces growing pressure to balance inflation risks with slowing economic momentum. Market pricing suggests traders see only about a 20% chance of a rate cut this month, sharply lower than the roughly 75% probability expected just a week ago.
Separately, the UK’s economic outlook for 2026 has been revised lower. The Office for Budget Responsibility downgraded its growth forecast for that year to 1.1%, down from the 1.4% projection issued in November.
What’s Being Said
“Gross domestic product will grow slightly slower in 2026 than forecast at November’s autumn budget, but will increase by more than previously expected in 2027 and 2028,” said Rachel Reeves, UK Chancellor of the Exchequer, during her spring statement in the House of Commons.
Reeves added that unemployment is expected to peak later this year before gradually declining between 2027 and 2030, ultimately reaching around 4.1%.
What’s Next
Investors are now closely watching geopolitical developments in the Middle East for signals that diplomatic negotiations could ease market tensions.
Markets will also monitor upcoming Bank of England policy signals and inflation data to assess whether policymakers will maintain current interest rate levels or adjust policy in response to energy-driven inflation pressures.
