Pound steady on local elections

The currency was little changed at $1.3539, and a bit stronger against the euro at 86.31 pence

The British pound was broadly steady on Tuesday as traders focused on UK local elections on Thursday that could add to the pressure ​on Prime Minister Keir Starmer, and the standoff between the U.S. and Iran ‌in the Strait of Hormuz.

The currency was little changed at $1.3539, and a bit stronger against the euro at 86.31 pence.

The fragile truce in the Middle East was under strain after Iran and the ​U.S. exchanged fire in the Gulf and wrestled for ​control of the Strait of Hormuz.

Sterling has performed better than many ⁠rivals during the war so far, but UK local elections could be a ​headwind.

The biggest story for sterling since the start of this war has been ​the change in money market pricing of Bank of England interest rate hikes, Jane Foley, head of FX strategy at Rabobank, said.

Before the war, the market was expecting cuts and then ​they swung very quickly into expecting hikes and as a consequence of that, ​sterling has been one of the better G10 performers since the start of this war, she said.

Money ‌markets ⁠were last pricing in at least two 25-basis-point rate hikes from the BoE this year, with a good chance of a third. The central bank last week kept policy on hold, but left the door open to rate increases.

However, Foley ​noted, the UK economy ​is facing some ⁠weakness, which could be amplified by interest rate hikes. That in turn could eventually weigh on sterling, she said, with ​the May 7 local elections also presenting a risk factor.