Updates prices, adds comment
Pound rises 1% against dollar after Trump's announcement
Stock markets rebound, pressure on UK bond markets alleviated
Energy prices drop, easing UK economic fears amid Iran tensions
By Harry Robertson and Canan Sevgili
LONDON, March 23 (Reuters) - The pound rebounded on Monday after President Donald Trump said the U.S. would postpone strikes on Iranian power plants for five days, abandoning his previous threat that had sent stocks tumbling and the dollar surging.
Sterling GBP=D3 was last up 1% against the dollar at $1.348, after earlier falling more than 0.5% as investors flocked to the dollar.
Trump's postponement sparked a rebound in stock markets, which had been trading deeply in the red, and also alleviated some of the recent pain in Britain's fragile bond markets.
"Markets have been taken on a wild ride, as investors have swung from deep pessimism to giddy optimism about the trajectory of the war with Iran," said Susannah Streeter, chief investment strategist at Wealth Club.
Yet she added: "Clinging to President Trump’s words is fraught with risks."
Ten-year Gilt yields GB10YT=RR were last down 11 basis points at 4.883%, having earlier risen to their highest level since 2008 as markets priced in four interest rate hikes from the Bank of England this year. Yields rise as prices fall and vice versa.
Traders were last betting on around two 25-basis-point hikes from the BoE in 2026, a dramatic change from the two cuts priced in before the war but down sharply from earlier in the day.
The euro EURGBP=D3 was down 0.4% against the pound at 86.37 pence as the drop in energy prices alleviated some of the fears about the potential impact of the war on the UK economy, which is highly reliant on imported oil and gas.
Trump posted on his Truth Social platform on Monday that the U.S. and Iran had had productive conversations over the past two days about a "COMPLETE AND TOTAL RESOLUTION OF HOSTILITIES IN THE MIDDLE EAST".
Iran's foreign ministry said there were "initiatives" to reduce tensions, the Mehr news agency reported.
"U.S. efforts to de-escalate tensions need Iranian cooperation to be effective," said Ipek Ozkardeskaya, senior analyst at Swissquote.
"How Iran responds will matter more than unilateral announcements from Mr Trump. Hope is here, but uncertainties persist."
Brent crude oil LCOc1 fell 10% to $101.10 a barrel.
Nonetheless, energy prices remain more than 40% higher than before the war, a spike that has caused fears among investors about a slowdown in the British economy and a sharp rise in inflation, which has weighed on the pound and hammered bonds.
Graphic: World FX rates in 2023 http://tmsnrt.rs/2egbfVh
Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Reporting by Harry Robertson in London and Canan Sevgili in Gdansk; Editing by Sharon Singleton and Hugh Lawson)
((harry.robertson@thomsonreuters.com))
