- Pound (GBP) is flat after two days of gains
- UK public sector net borrowing rose to £14.3 billion
- Euro (EUR) is unchanged near a multi-month low
- Easing oil prices are supporting the EUR
The Pound-Euro (GBP/EUR) exchange rate is unchanged on Friday after two days of gains. The pair rose 0.11% in the previous session, settling on Thursday at €1.1590. The pair traded between €1.1560 and €1.1614. At 10:30 UTC on Friday, GBP/EUR trades +0% at €1.1590. The pair is on track to rise 0.04% this week, the third straight week of gains.
The pound is holding steady on Friday around multi-month highs as investors digest the latest government borrowing data.
Data showed that government borrowing was significantly higher in February, owing to the timing of debt interest payments, even before the shock of the Iran war pushed up borrowing costs.
Figures from the Office for National Statistics showed that public sector net borrowing was £14.3 billion in February, well above the £8.5 billion deficit economists had expected. The ONS cited the timing of debt interest payments as a key factor behind the 18% increase compared to February 2025.
The US–Israel conflict with Iran, and the resulting jump in energy prices and inflation expectations, has driven government borrowing costs higher.
Rising inflation expectations, combined with a hawkish Bank of England stance, have pushed UK government bonds lower, lifting yields.
Short-dated UK gilts, a key source of government funding, saw one of their worst days on record on Thursday after BoE officials warned of possible rate hikes — a sharp turnaround from rate cuts expected just a month ago.
The euro is steady after recent losses.
The euro has been particularly hard hit by the Iran conflict and soaring energy prices, given the region’s heavy reliance on imported energy.
However, a slight easing in oil prices today is helping to calm some fears. Brent crude has pulled back from the $119 level reached yesterday, as the US and European allies consider measures to secure the Strait of Hormuz. Additionally, Israel has indicated it will not target Iran’s energy infrastructure following earlier attacks this week.
At yesterday’s ECB meeting, the central bank left rates unchanged, as expected, but adopted a slightly more hawkish tone, stating it stands ready to act if needed. The ECB also revised its inflation forecast higher for this year.
