The British pound climbed to its highest level in almost a month against the U.S. dollar and reached a one-year high versus the euro on Friday as investors assessed how central banks may respond to rising energy prices linked to the ongoing U.S.-Iran conflict.
Sterling rose to $1.345, its strongest level since mid-June, while the euro briefly fell to 85.18 pence, its weakest level against the pound since June 2025, before recovering to trade broadly unchanged.
Analysts said the recent strength of the pound has been supported by stronger-than-expected UK economic growth, increased foreign investment through corporate acquisitions, improving political stability and expectations surrounding Bank of England monetary policy.
Market sentiment was also boosted by comments from Bank of England Chief Economist Huw Pill, who indicated that further interest rate increases may still be required to control inflation.
“That message reinforced the market’s view that the Bank of England still has less room to look through inflation than the Fed or the ECB,” said Van der Laan.
Yet he added: “With no important UK data today, sterling is likely to be driven by broader dollar moves, oil prices and Middle East headlines.”
The International Monetary Fund (IMF) this week upgraded its UK economic growth forecast, projecting the economy will expand by 1% in 2026 and rank as the third-fastest growing economy in the G7, behind only Canada and the United States.
Britain’s economic outlook has also benefited from the recent U.S.-Iran agreement and the subsequent decline in oil prices, although renewed geopolitical tensions have pushed crude prices higher again in recent days.
Brent crude was trading at around $76 a barrel, roughly unchanged on the day but well below the peak of approximately $126 recorded in April.
Political developments also remained in focus after former Greater Manchester Mayor Andy Burnham secured the backing of a large majority of Labour MPs, significantly strengthening his position to succeed Keir Starmer as the UK’s next prime minister.
