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[Geopolitical conflicts boost oil prices and inflation expectations, putting slight pressure on the pound, while safe-haven buying of the dollar strengthens] ⑴ On Monday, the foreign exchange market was affected by the renewed military conflict between the US and Iran, leading to increased risk aversion. The pound fell slightly by 0.1% against the dollar to 1.339, while the euro rebounded by 0.2% against the pound to 85.38 pence, after hitting its lowest level in a year last week. ⑵ The US and Iran continued missile and drone attacks over the weekend and on Monday. Iran struck US facilities in the region and claimed to have closed the Strait of Hormuz again, while the US military struck Iranian air defense systems and coastal radar stations. Brent crude oil rose 2% to $77.60 as a result. ⑶ A senior foreign exchange analyst at MUFG stated that the spillover effect in the foreign exchange market is currently mild, but the significant rise in oil prices, combined with the recent signals from the Federal Reserve considering raising interest rates to address the risk of rising inflation, could become a stronger bullish catalyst for the dollar. (4) Currency market pricing indicates that traders have increased their bets on the extent of the Federal Reserve's rate hikes this year, currently expecting a tightening of approximately 37 basis points, slightly higher than the Bank of England's 33 basis points. This interest rate differential provides additional support for the US dollar. (5) The pound has performed relatively strongly overall this year, mainly due to the slightly stronger-than-expected resilience of the UK economy. Since 2026, the pound has only depreciated by 0.6% against the dollar, far less than the 2.7% depreciation of the euro against the dollar. Its future trajectory will depend on the evolution of the US-Iran situation and the degree of divergence in the policy paths of the central banks of the UK and the US.