On March 30, the British pound (GBP) dropped to its lowest level in over three weeks against the euro and was poised for a fifth consecutive daily decline against the US dollar (USD). This downward trend reflects investor anxiety over the Iran conflict’s potential effects on the UK economy. Despite this, the pound remains the strongest currency against the dollar since the war began in early March.
During the same timeframe, the euro has depreciated by approximately 2.7%, while the Japanese yen has fallen by 2.4%. Nevertheless, analysts warn that the pound is vulnerable due to the UK’s significant reliance on imported natural gas, ongoing high inflation, and strained public finances. These factors have contributed to a sharper decline in UK government bonds.
Yields on 10-year UK Gilts held steady at 4.98%, after reaching 5.118% last week—their highest point since 2008. Some British pension funds have been required to increase cash reserves to cover hedging positions following a steep selloff in government bonds. However, the current impact remains considerably less severe than the crisis that led to former Prime Minister Liz Truss’s downfall.
In a notable development, Barclays strategists highlighted that geopolitical tensions have overshadowed UK politics, but the likelihood of a more expansionary fiscal policy has increased due to the energy crisis and the upcoming local elections in May. Investors are closely watching the May 7 elections, where Keir Starmer’s Labour Party trails behind the populist Reform UK and the left-wing Green Party.
Recent economic data revealed that British business activity expanded at its slowest rate in six months, while manufacturers’ input costs rose at the fastest pace since 1992. Additionally, retail sales declined, further weighing on the pound. The currency was down 0.15% at $1.324 against the dollar, following a 1.67% drop throughout March.
The euro gained 0.11% to 86.83 pence, after reaching 86.87 pence—the highest level since March 6. It had previously fallen to 86.12 pence on March 19, marking its lowest point since August 2025. Market expectations suggest the European Central Bank may raise interest rates as early as April, while the Bank of England is anticipated to postpone any rate cuts.
