Pound to Euro Rises on Hopes of De-Escalation

Modified: Monday, 23 March 2026 21:16 BST - Written by Ben Hughes

STORY LINK Pound to Euro Rises on Hopes of De-Escalation

The Pound Euro (GBP/EUR) exchange rate ticked up on Monday as shifting developments in the Middle East injected fresh volatility into currency markets.

At the time of writing, GBP/EUR was trading close to €1.1565, marking a gain of 0.3% on the day.

The Pound edged higher as renewed tensions in the Middle East injected fresh uncertainty into global markets.

Over the weekend, US President Donald Trump warned that Iranian power infrastructure could be targeted within 48 hours if the Strait of Hormuz remained blocked. In response, Tehran threatened retaliatory strikes against key energy and water facilities, raising fears of further escalation.

As concerns mounted over the potential impact on global energy supply, investors began pricing in the possibility of up to four interest rate increases from the Bank of England over the next year. However, Sterling’s initial gains were capped by unease over the implications of tighter policy for the UK’s already fragile economy, as well as the government’s fiscal position.

Sentiment then shifted sharply after Trump indicated via social media that planned strikes on Iranian energy assets would be delayed by five days, citing progress in diplomatic discussions aimed at resolving the conflict.

The sudden change in tone triggered notable market volatility, with the Pound benefitting from a more optimistic outlook. While expectations for higher UK interest rates remain in place, GBP investors appeared increasingly hopeful that the domestic economy may avoid the most severe fallout from an extended crisis.

The Euro came under early pressure, largely driven by its inverse relationship with the US Dollar.

The US Dollar advanced as escalating tensions between the US and Iran dampened market sentiment, boosting demand for safe-haven assets and weighing on the single currency.

While the US Dollar later relinquished some of its gains following signs of a potential de-escalation, the Euro struggled to recover, leaving it on the back foot.

Short-Term GBP/EUR Forecast: PMI Data in Focus

Preliminary PMI readings from both the UK and the Eurozone are set to play a key role in shaping movement in the Pound Euro exchange rate.

The Eurozone figures are released first, with expectations pointing to a moderation in service sector growth, with the index forecast to ease from 51.9 to 51. At the same time, manufacturing activity is anticipated to fall back into contraction territory, with a reading of 49.4.

In the UK, business activity is also projected to cool, although it is expected to remain comparatively stronger than in the Eurozone. Analysts forecast the services PMI will slip from 53.9 to 53, while manufacturing is predicted to hold just above contraction at 50.5.

Should the data meet expectations, Sterling may hold an advantage over the Euro. That said, ongoing uncertainty surrounding the situation in the Middle East could inject volatility into the surveys, meaning any deviation from forecasts may prompt sharper fluctuations in GBP/EUR.

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TAGS: Pound Euro Forecasts