Finance
Sterling hits 2-1/2-month low against dollar, edges down versus euro
Published by Global Banking & Finance Review®
Posted on March 2, 2026
2 min readLast updated: March 2, 2026
Quick Summary
Sterling tumbled to a 2½‑month low of $1.3315 versus the dollar, pressured by Middle East tensions boosting safe‑haven demand and domestic political uncertainty. The pound also edged lower versus the euro as gilt yields remained subdued amid dovish Bank of England expectations and rising fiscal conc
British Pound Drops to 2.5-Month Low Against US Dollar on Global, Political Risks
Sterling Weakens Amid Global Tensions and Domestic Political Uncertainty
By Stefano Rebaudo and Ozan Ergenay
Market Movements and Safe-Haven Demand
March 2 (Reuters) - Sterling hit a 2‑1/2‑month low against the dollar and edged down versus the euro on Monday, as the Iran conflict sent investors into safe‑haven assets while concerns over the Bank of England’s policy path weighed on the British currency.
The dollar rose as the Iran conflict fuelled safe‑haven demand, and higher oil prices.
Sterling fell 0.68% to $1.3393, after reaching $1.3315, its lowest level since December 17.
Political Developments Impacting the Pound
As well as events in the Middle East, sterling is being affected by domestic politics after a local election in northern England brought a resounding defeat for Prime Minister Keir Starmer's Labour party, raising speculation that the government could move further to the left and increase government spending.
Labour’s Influence and Fiscal Expectations
Barclays strategists argued that the growing influence of Labour’s soft‑left faction could justify expectations for more fiscal spending and a higher premium in the pound.
At about 0.88 in the euro/pound cross that premium has grown to around 2%, Barclays estimated. It could widen further in the near-term depending on political developments.
The euro was up 0.05% at 87.68 pence.
Analyst Insights and Market Outlook
“For now, sterling and gilts are signalling caution rather than stress, but with political uncertainty rising and the policy trajectory appearing less predictable, the pound’s capacity to rebound looks limited until Labour provides clearer direction," said George Vessey, lead forex and macro strategist at Convera.
Interest Rates and Yield Movements
Strategists argued that short‑dated gilt yields close to multi‑year lows are consistent with the broader data trajectory and a dovish shift at the Bank of England, reinforcing expectations of sterling underperformance.
The yield on British 2-year government bonds <GB2YT=RR > was on Monday up 4 bps at 3.55%, after reaching last week 3.516% its lowest since August 2024.
German 2-year yields rose as inflation concerns mounted.
(reporting by Stefano Rebaudo and Ozan Ergenay; editing by Susan Fenton)
Key Takeaways
- •Sterling dropped to its lowest since December 17, hitting $1.3315, before settling at $1.3393 amid Iran‑related safe‑haven flows and oil price spikes. (apnews.com)
- •Political uncertainty after northern England local election results raised fears of a left‑leaning fiscal shift under Labour, adding pressure on sterling and gilts. (vtmarkets.com)
- •Short‑dated UK gilt yields remain near multi‑year lows, reflecting market expectations of further Bank of England rate cuts, limiting sterling’s recovery. (macrospire.com)
References
Frequently Asked Questions about Sterling hits 2-1/2-month low against dollar, edges down versus euro
1Why did sterling fall to a 2.5-month low against the dollar?
Sterling dropped as the Iran conflict led investors toward safe-haven assets like the dollar, and concerns about UK politics and Bank of England policy also weighed on the pound.
2What was the latest exchange rate for sterling against the dollar?
Sterling fell 0.68% to $1.3393, after touching $1.3315, its lowest since December 17.
3How did the euro perform against the pound?
The euro rose 0.05% to 87.68 pence, with a growing premium in the euro/pound cross rate due to political and policy uncertainties.
4What role did the Bank of England's policy play?
Expectations of a dovish shift at the Bank of England and lower gilt yields reinforced views of continued sterling underperformance.
