GBP/USD is currently at 1.34111, having declined from recent peaks, amidst a market scenario where two opposing forces are influencing Sterling concurrently. The energy-driven inflation shock stemming from the Iran war is influencing the Bank of England’s rate cut expectations, thereby offering yield support for the pound. Conversely, the recent increase in oil prices that is dampening expectations for rate cuts is simultaneously imposing a burden on UK economic activity, reducing real incomes, jeopardizing corporate earnings, and diminishing risk appetite overall. The GBP/USD lacks a clear directional catalyst at the moment, presenting two opposing influences. The pair’s forthcoming sustained movement will hinge on which factor prevails in the macro narrative over the next two to three weeks. The week ending March 5 presented a significant challenge for UK risk assets. The FTSE 100 declined by 1.5% during the session, finishing at 10,284.75. The Dow Jones decreased by 455 points, the S&P 500 declined by 90 points, and the Nasdaq lost 365 points. GBP/USD experienced a decline of 0.4% on Thursday, reaching an intraday low of 1.3320. The DAX declined by 1.6%, while the CAC 40 decreased by 1.5%. This was a coordinated global risk-off, influenced by the conflict in Iran and the market’s emerging understanding that the oil disruption is not a short-term occurrence. The 5.74% weekly decline of the FTSE 100 offers essential insight for interpreting GBP/USD. Sterling generally followed the market trend instead of deviating from it — indicating that the pound’s weakness was a risk-off reaction rather than a specific decline in UK fundamentals. The distinction is significant when forming an outlook on the future trajectory of GBP/USD from its current position. A currency that declines alongside global equities during a risk-off scenario can rebound when risk appetite normalizes, in contrast to a currency that weakens due to specific fundamental issues.
By Friday March 8, GBP/USD had recovered to 1.34111 from the 1.3320 Thursday low, indicating that the worst of the immediate panic move had been absorbed and the pair was attempting to stabilize in the mid-1.33 to 1.34 range. The current dynamic in GBP/USD is quite counterintuitive: the surge in oil prices, which clearly poses a negative impact on UK growth and real consumer incomes, is concurrently providing support to Sterling via the interest rate channel. ING pointed out that the “repricing at the short end of the interest rate curve, as the market prices out Bank of England easing, has also supported the pound.” This is the mechanism summarized in a single sentence. At the beginning of 2026, with oil priced at $60, the market was anticipating several rate cuts from the Bank of England throughout the year. WTI has now surged over 50% year-to-date, closing near $91 on Friday and reaching $115 on Hyperliquid weekend futures. At those energy price levels, UK headline inflation does not return to target within the timeframe previously modeled by the BoE — it instead re-accelerates. A central bank dealing with rising inflation cannot implement aggressive rate cuts, no matter the growth data trends. The market has adjusted expectations regarding BoE easing, and this diminished cut pricing offers yield support for Sterling, which helps to mitigate some of the growth impact. Jefferies has articulated a clear stance on the terminal rate: they uphold a 3% terminal rate for the UK and have expressed disagreement with the recent front-end selloff, contending that the market has overreacted in its pricing of rate hikes. The firm anticipates that the European Central Bank is more inclined to reduce rates rather than increase them in 2026, with no adjustments considered the base scenario. This creates a relative hawkishness differential between the Bank of England and the ECB, which offers structural support for GBP against EUR, as well as relative support for GBP/USD, given the Fed’s own complex balancing act between inflation and growth.
GBP/EUR provides a more detailed perspective on the current position of GBP in this context. The cross concluded Friday at 1.154055, positioned close to the peak of its recent range after steadily advancing during the initial week of March. The increase in GBP/EUR highlights a particular relative dynamic: both currencies are energy-importing and both are experiencing inflationary pressures from the oil shock. However, the market currently perceives the ECB as having less capacity to maintain a hawkish stance compared to the BoE. This is due to the fact that Eurozone growth was already weaker prior to this crisis, and Europe’s energy dependence—especially on LNG that passes through the Strait of Hormuz—is structurally more severe than that of the UK. Morgan Stanley has indicated that extended oil disruptions might lead to a reevaluation of EUR/USD, potentially setting a floor around 1.13. Deutsche Bank has stated that the euro’s vulnerability to the conflict is attributed to “one factor: energy.” MUFG stated that terms-of-trade shocks rapidly decrease EUR/USD when energy prices rise. The weakness of the euro has a corresponding effect of strengthening the GBP/EUR pair. If EUR/USD declines from 1.1619 towards 1.13, and GBP/USD remains more stable in the 1.32-1.34 range, GBP/EUR increases. That cross dynamics is presently one of the more straightforward trades in G10 FX. This week’s UK corporate earnings landscape offers valuable insights into the impact of the energy shock on British businesses. Wizz Air has released an unexpected profit warning, indicating that the ongoing crisis in the Middle East is expected to impact net profit by around €50 million in fiscal year 2026, resulting in earnings falling below the guidance of €25 million to -€25 million.
The airline pointed to spot jet fuel prices — which reached a record high of $1,528 per metric ton in northwest Europe on Thursday, translating to over $190 per barrel — as the main factor influencing their decision. Wizz Air’s shares experienced a decline of 5.12% during the session. This represents the initial significant corporate indication that the oil shock is resulting in direct profit loss for UK-listed companies with ties to the Middle East. On the other side of the ledger, Aviva reported operating profit of £2,203 million for 2025, reflecting a 25% increase year-on-year — achieving its £2 billion target one year ahead of schedule. Operating earnings per share reached 56.0p, an increase from 48.0p in 2024, reflecting a 17% growth. General insurance premiums increased by 18%, rising to £14,145 million from £12,204 million. For GBP/USD, Aviva’s result highlights that the earnings within the UK financial sector are strong and not as directly affected by the disruptions in Middle Eastern energy as sectors like aviation and consumer-facing businesses are. Taylor Wimpey reported a full-year 2025 adjusted operating profit of £420.6 million, aligning with its guidance of £420 million. Revenue increased by 13% to £3,844.6 million, with 10,614 completions — a rise of 6.4% compared to the previous year — and the average selling price climbed 5% to £335,000. The operating margin, however, decreased to 10.9% from 12.2%, indicating that cost pressure is indeed a concern. For a UK homebuilder, these figures are impressive in a context where elevated mortgage rates and cost inflation have posed significant challenges for the past two years.
Reckitt Benckiser announced a Q4 like-for-like net revenue growth of 5.4%, surpassing the consensus estimate of 4.7%. Emerging markets were the key drivers of outperformance, with revenues increasing by 14.6% for the full year — these markets account for about 42% of Reckitt’s core revenues. The European segment, on the other hand, experienced a decline of 1.4%. Coats Group has increased its medium-term operating margin target to a range of 21%-23%, up from the previous 19%-21%. Additionally, the company has raised its five-year free cash flow target to around $1 billion. Rentokil demonstrated organic growth of 2.6% in North America’s pest control services for Q4, recovering from a negative growth of -0.2% in the first quarter, with projected full-year revenue for 2025 at $6.91 billion. The corporate earnings landscape is divided: energy-sensitive sectors such as aviation are facing significant challenges, whereas financial services, consumer goods with emerging market exposure, and diversified industrials continue to show strong fundamentals. The mixed corporate backdrop aligns with a GBP/USD that stabilizes instead of collapsing — the UK economy is not in freefall, merely experiencing significant sectoral stress due to the oil shock.