Pound Sterling Gains; Oil Cools, BoE Rate Cuts Delayed

Market sentiment improved significantly after the Wall Street Journal reported the IEA is considering its largest-ever oil reserve release, exceeding the 182 million barrels released in 2022, to stabilize markets and alleviate inflation fears stemming from the Middle East conflict. Investor confidence also received a boost from US President Donald Trump's statement that the conflict could end quickly and his announcement of US Navy escorts for tankers through the Strait of Hormuz.

Despite the immediate GBP strength, expectations for Bank of England (BoE) policy have shifted, with traders now leaning towards delayed rate cuts. Standard Chartered and Morgan Stanley now anticipate the BoE will begin cutting interest rates in the second quarter, pushing back earlier forecasts due to inflation risks linked to the Middle East conflict and recent energy price surges.

Markets currently price a 98% probability that the BoE will keep rates unchanged this month, according to London Stock Exchange Group (LSEG) data. The GBP/USD pair also advanced as the US Dollar remained subdued ahead of the US Consumer Price Index (CPI) data, though the Greenback could regain ground on safe-haven demand if Middle East uncertainty escalates, as indicated by intensifying military operations despite Trump's optimistic remarks.