HG MARKETS:

The British pound fell for the fourth straight day against the U.S. dollar on Friday after disappointing economic data from the UK and rising concerns about the economic consequences of the Middle East conflict pushed investors toward the safer U.S. currency.

Official figures showed that the UK economy unexpectedly stalled in January, while long-term inflation expectations remained elevated. Economists noted that the pace of economic demand before the Iran-related conflict began will play a key role in shaping how the Bank of England responds to the likely rise in energy prices caused by the geopolitical tensions.

As a result, the pound weakened by about 0.51% during the day, trading at around $1.3273 against the U.S. dollar.

Meanwhile, the euro strengthened slightly against the pound, rising 0.13% to about 86.37 pence after touching 86.18 pence a day earlier—its lowest level since early February. Financial markets currently expect the European Central Bank to increase interest rates at least once during 2026.

In the UK bond market, the yield on two-year government bonds rose slightly to 4.11%. This came after a sharp increase of more than 50 basis points since March 2, reflecting expectations that the Bank of England could adopt a more aggressive stance on interest rates.

At the same time, economic data from the euro area painted a weaker picture. Industrial production across the 21 countries that use the euro declined by 1.5% in January compared with the previous month, according to data from Eurostat. This was far worse than economists’ expectations of a 0.6% increase. Major economies such as Germany, Italy, and Spain all reported declines in industrial output.

On a yearly basis, euro zone production dropped by 1.2%, compared with forecasts of 1.4% growth. The situation appeared even weaker after Eurostat revised its December data upward.

Overall, the euro zone’s industrial sector has struggled for several years and remains about 3% below its 2021 output level. The sector has been pressured by persistently high energy costs, stronger competition from China, tariffs from the United States, weak productivity growth, and declining global demand for European automobiles.