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Sterling drops as geopolitical tensions rise and investors shift to the safe-haven dollar.
The British pound declined sharply on Friday, weighed down by escalating geopolitical tensions that prompted investors to retreat from risk-sensitive currencies and seek safety in the U.S. dollar amid growing global uncertainty.
The pound dropped approximately 0.7% to $1.35225, mirroring similar losses in other high-risk currencies. The Australian dollar fell by 0.9%, while the New Zealand dollar slipped 0.86%. In contrast, the euro gained 0.2% against the pound, reaching 85.23 pence.
This shift comes in response to reports of military strikes targeting sensitive nuclear and industrial sites in the Middle East, which triggered a wave of market anxiety and drove increased demand for safe-haven assets such as the dollar and gold. In retaliation, over 100 drones were reportedly launched by a regional power, heightening fears of broader conflict.
Market analysts suggest that geopolitical escalation is likely to sustain demand for low-risk instruments until the situation stabilizes, contributing to heightened volatility in the currency markets in the near term.
Domestically, the British pound also faced additional pressure due to a series of weak UK economic indicators, including sluggish performance in manufacturing and employment, as well as signs of slowing economic growth. Recent official statements regarding a possible review of public spending further fueled speculation about upcoming tax hikes, raising concerns about the long-term growth outlook.
Investors are now pricing in a quarter-point interest rate cut by the Bank of England in September, with an additional reduction likely by December. Such moves would bring the base rate down to around 3.7% from the current 4.25%, as policymakers seek to stimulate the economy amid declining consumer confidence and reduced spending.
