Pound Sterling Slips Amid Iran-Israel Conflict and Rising Risk Aversion

Pound Sterling Weakens as Geopolitical Risk Surges

The Pound Sterling (GBP) lost ground on Friday as global markets shifted into risk-off mode following dramatic escalations in the Middle East. Among G10 currencies, the GBP underperformed most peers except the risk-sensitive Australian and New Zealand Dollars.

Heightened geopolitical stress emerged after Israel launched a missile strike on Iranian territory, targeting nuclear and military sites. This caused investor sentiment to deteriorate rapidly.

Israeli Prime Minister Netanyahu launched "Operation Rising Lion" to dismantle Iran’s nuclear capabilities, claiming it is critical for Israel’s survival.

Risk Sentiment Sours; GBP Under Pressure

The UK currency has suffered as safe-haven flows drive investors away from risk-linked currencies, especially amid a lack of economic optimism in the UK.

• The BoE is widely expected to keep rates unchanged next week.
• Analysts expect the central bank to return to a more cautious monetary stance, given poor UK economic data.

"We expect the BoE to reintroduce a gradual and cautious forward guidance," economists suggested, amid deteriorating output and inflation prints.

BoE & Fed Decision Week Looms

Markets are also preparing for a critical week ahead, with both the Bank of England (BoE) and the Federal Reserve (Fed) scheduled to hold interest rate decisions.

While the Fed is likely to stay on pause, expectations for the BoE to maintain a dovish tilt are weighing further on GBP outlooks.

US President Donald Trump weighed in on the conflict earlier, stating that “Iran cannot have a nuclear bomb” and offered partial backing to Israel’s actions.

Conclusion

The British Pound's slide reflects the broader market reaction to geopolitical upheaval, combined with weak domestic data and cautious central bank expectations. Unless tensions ease or UK data surprises to the upside, the GBP may remain under pressure heading into next week.