British Pound Slips for Second Day as Iran Conflict Drives Safe-Haven Demand
Reuters
LONDON, March 6 — The British pound weakened for a second consecutive session on Friday as escalating tensions in the Middle East pushed investors toward safe-haven assets such as the US dollar, according to Reuters reports.
Sterling slipped 0.15 percent against the US dollar to $1.3335, putting the currency on track for a weekly decline of about 1.1 percent. Against the euro, the pound remained broadly stable at around 86.83 pence, although the euro itself also weakened versus the dollar amid heightened geopolitical uncertainty.
Middle East Tensions Weigh on Market Sentiment
Global markets have been rattled by the expanding conflict involving Iran, which has dampened hopes for a quick diplomatic resolution. Continued attacks in the region have increased uncertainty among investors and triggered a shift toward traditionally safer assets.
Rising oil prices resulting from the conflict have also intensified inflation concerns, particularly for energy-importing economies such as the United Kingdom.
Bank of England Rate Expectations Shift
The evolving crisis has altered expectations surrounding monetary policy from the Bank of England.
Markets had previously anticipated that the central bank might begin cutting interest rates as early as March. However, recent data compiled by the London Stock Exchange Group shows that the probability of a March rate cut has fallen sharply to around 15 percent, down from approximately 75 percent just a week ago.
Traders are now pricing in roughly a 65 percent chance of a rate cut by the end of the year, compared with earlier expectations of two rate cuts in 2026.
Analysts say the central bank is likely to adopt a cautious stance as geopolitical risks continue to evolve.
Bond Yields Rise
Government bond yields in the UK also moved higher on Friday. The yield on two-year gilt bonds, which are highly sensitive to interest-rate expectations, rose about 9 basis points to 3.894 percent, after briefly reaching their highest level since mid-October earlier in the day.
Economists note that while delayed rate cuts could provide some support to the pound, the broader impact of higher energy prices and geopolitical instability could keep pressure on the currency.
Our Final Thoughts
The latest movements in the pound highlight how geopolitical conflicts increasingly influence global financial markets. As the Middle East crisis deepens and energy prices remain volatile, investors are likely to continue favouring safe-haven assets, leaving currencies like sterling exposed to external shocks.