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GBP/EUR hits a three-week low on Monday at 1.1515.
Pound sterling will remain at risk of further bond market jitters during the coming days as investors grapple with fears that the Iran war will leave energy prices elevated for longer than many indebted countries, such as the UK, can handle.
Pound-euro slid sharply last Friday amidst a selloff in global bonds that sent the yields of those bonds materially higher, with the UK being hardest hit amongst the G10 countries.
UK two- and ten-year bond yields rallied by more than comparable peers because the UK is a net energy importer with a particularly sizeable public sector debt burden, meaning international investors typically demand a premium to hold British debt.
Even if Monday sees bond yields retrace some of Friday's gains, the risk for the British pound in the coming week is that these tensions build. For those with upcoming transfers, this type of environment tends to shift the focus toward managing downside risk rather than waiting for improvement, particularly where timing can materially affect the outcome.
Above: UK ten-year bonds now trade at a premium to major equivalents, confirming UK bonds are deemed more risky than those of peer countries.
One risk is that the UK government tries to copy other countries and announce costly measures to subsidise oil or gas users at a time when its finances are already under strain.
With global debt markets being flooded with debt, there's the potential for markets to baulk at such a move and send the pound lower.
"Risks of a more expansionary fiscal policy have likely risen in the wake of the energy shock," says a weekly FX analysis update from Barclays.
Foreign exchange markets are not panicking yet and pound sterling's losses remain orderly and contained, but it is important to highlight the warning signs are there. Those with international payments should be factoring this into their strategy, particularly where even modest moves in the exchange rate can affect the final amount received.
GBP/EUR has been trending lower ever since it peaked at 1.1612 ten days ago, with Monday seeing a new three-week low reached at 1.1515:
This is the location of the 50-day moving average, which could offer some support, although looking at recent history shows this particular indicator hasn't been of much use and might not arrest the selloff.
Provided bond markets settle - and that's a big 'if' considering the war in the Middle East isn't any closer to ending - then we would look for GBP/EUR to drif closer to 1.15.
The decline will be interspersed with the one or two up days where the exchange rate recovers towards 1.1550, but overall, these rallies will likely be sold into.
Strategy: Managing GBP/EUR Risk
The current setup suggests sterling remains exposed to further weakness if external pressures persist.
If you need to buy euros in the near term, acting sooner may help reduce exposure to further declines.
If your transfer is not urgent, monitoring whether GBP/EUR stabilises around 1.15 may provide additional clarity.
In more uncertain conditions, splitting transfers can help manage risk while retaining flexibility if the market shifts.
Where larger amounts are involved, having access to guidance can help navigate both timing and execution more effectively.
? For help, our partners at Horizon Currency offer one-on-one support through the entire transfer process.