🇬🇧 GBP Under Pressure as Middle East Escalation Fuels Risk-Off Sentiment
GBP is expected to remain under pressure after US -Iran tensions escalated sharply over the weekend, with Israel and the US reportedly conducting more than 2,000 sorties. The broader Middle East fallout has also impacted thousands of expatriates in the UAE, adding to regional uncertainty. Sterling opened Monday on the defensive, with GBP/EUR trading around 1.14 and Cable near 1.34.
The reported elimination of Iran’s Supreme Leader, Ali Hosseini Khamenei, along with other senior figures, raises the risk of a deeper and more prolonged conflict. Any escalation involving direct retaliation against the US, Israel, and their allies would significantly heighten geopolitical risk. A sustained conflict would increase downside risks to global growth and could reignite inflationary pressures, particularly through energy markets. This would likely entrench a broader risk-off tone across financial markets, driving higher FX volatility and placing additional downward pressure on Sterling. Further losses in GBP are possible if hostilities intensify, though signs of de-escalation or renewed negotiations could support a partial recovery.
🇺🇸 Markets on Edge as US Iran Tensions Escalate
After years of strained relations between the US and Iran, tensions have escalated into open conflict, triggering renewed volatility across global markets. Commodities like oil have surged, while currency markets have turned more defensive amid heightened geopolitical uncertainty. In periods of elevated risk, capital typically flows into traditional safe havens, and USD has benefited accordingly.
The DXY index is on track for a monthly gain of more than 2%, supported by increased demand for Dollar liquidity. Over the weekend, President Trump stated in a media interview that Iran’s new leadership is looking to speak and that he is open to talks, raising the prospect of a potential diplomatic resolution. A credible move toward negotiations would likely ease market tensions and reduce volatility. However, in a separate social media address, Trump indicated that US–Israeli military operations against Iran ,which began on Saturday following the reported killing of Iran’s Supreme Leader, Ayatollah Ali Khamenei – will continue ‘in full force’.
🇪🇺 Euro Extends Gains Against Sterling Amid UK Political Uncertainty
Amid escalating tensions in the Middle East, the Euro continues to strengthen against Sterling, marking a fourth consecutive weekly gain. EUR/GBP has been supported not only by broader risk dynamics but also by renewed UK political uncertainty. Last Thursday’s move lower in GBP followed fresh pressure on Prime Minister Keir Starmer after Labour lost the Gorton and Denton by-election, adding to concerns over domestic stability.
From an FX perspective, the Euro has been comparatively insulated from the Middle East volatility. It posted a modest weekly gain and opened Monday’s session firmer, with EUR/GBP trading above the 1.18 level in early European trading. However, this resilience may prove fragile. Should European institutions or key member states become more directly involved in the conflict, the Euro could quickly surrender recent gains, with heightened geopolitical exposure likely to trigger renewed volatility across the single currency.
This Week’s Market Moving Data
This week will be dominated by developments in the Middle East and President Trump’s stance, whether tensions ease through diplomacy or escalate further. Geopolitical headlines are likely to keep volatility elevated.
In addition, markets will focus on key US data, particularly Nonfarm Payrolls and broader labour market figures. It is a relatively quiet week for UK data, leaving Sterling more exposed to external factors. Meanwhile, the Eurozone will release retail sales and key inflation data, which could shape expectations for the ECB.
Tuesday March 3rd
The Core Harmonized Index of Consumer Prices (HICP)
HICP is important for the Euro because it measures underlying inflation across the Eurozone, excluding volatile components such as energy and food. As a key gauge for the European Central Bank, stronger or weaker readings can shift expectations for interest rates, directly influencing Euro valuation.
Thursday March 5th
Eurozone Retail Sales data
The Eurozone Retail Sales data is a great economic indicator of consumer spending across the bloc, as it measures the volume of sales of goods by retailers directly to end customers. A strong reading is generally seen as bullish for the Euro, while a weak weeding is seen as bearish.
Friday March 6th
US Nonfarm Payrolls Release
The US Nonfarm Payrolls report is one of the most influential indicators of American economic health, showing whether job creation is accelerating or cooling. Because it heavily shapes Federal Reserve interest-rate expectations, the release can trigger significant moves in the US dollar as markets react to the labour market’s strength or weakness.
