LONDON, April 8 (Reuters) - The pound headed for its biggest one-day gain in three weeks on Wednesday, after the United States and Iran agreed to a two-week ceasefire that ignited a surge of optimism across global markets as oil prices slid.
Sterling is just 0.4% below where it was prior to the start of the conflict in late February and was last up 1% on the day at $1.342, the highest since March 23.
Brent crude futures fell by as much as 16% in early trading, as investors welcomed the prospect of a sustained truce that might allow the resumption of flows of marine traffic through the Strait of Hormuz, which Iran has effectively blocked since the start of the war.
Money markets showed traders have scaled back their bets on a series of rate hikes by the big central banks this year. Prior to the announcement, traders were pricing in the prospect of at least two rate hikes by the Bank of England this year. That has now been brought back to just one hike in 2026, with an outside chance of a second .
Against the euro , the pound was marginally stronger on the day, as the single European currency traded down 0.2% at 87.12 pence, which ING strategist Chris Turner was a little surprising, given that investors have not cut back their expectations for the European Central Bank quite as aggressively as for the BoE, which in theory, would give the euro a lift.
"One might have thought EUR/GBP could be trading a little higher were Bank of England policy tightening to be priced out more quickly than that of the ECB. Still, EUR/GBP continues to trade over 0.8700 and should find good support on dips," he said.
Reporting by Amanda Cooper Editing by Keith Weir
Source: Reuters