Published by Global Banking & Finance Review®
Posted on March 2, 2026
2 min readLast updated: April 2, 2026
Add as preferred source on GoogleSterling 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
By Stefano Rebaudo and Ozan Ergenay
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.
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.
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.
“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.
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)
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.
Sterling fell 0.68% to $1.3393, after touching $1.3315, its lowest since December 17.
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.
Expectations of a dovish shift at the Bank of England and lower gilt yields reinforced views of continued sterling underperformance.
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