Sterling strengthened modestly against the US dollar on Friday as declining oil prices eased concerns over rising global borrowing costs, although the British currency remained close to its
recent lows against the greenback.
The pound climbed 0.1% to $1.324, recovering some ground after slipping to $1.3184 on Thursday, its weakest level since late June. Despite the latest improvement, sterling was on course to finish the week broadly unchanged against the dollar.
Against the euro, the pound traded almost flat, with the single currency worth 84.74 pence. Sterling was nevertheless heading for a second consecutive weekly advance against the euro, following a strong rally last week. On Wednesday, it reached 84.49 pence per euro, its strongest level since June 2025.
Currency markets have experienced considerable volatility over the past fortnight as rising energy costs pushed government bond yields higher across major economies. The resulting increase in borrowing costs has weighed on investor sentiment and intensified pressure on several currencies.
The euro has been particularly vulnerable, with French government bond yields climbing amid renewed concerns about the country's budget deficit. Meanwhile, uncertainty surrounding the geopolitical situation has encouraged investors to seek the relative safety of the US dollar.
However, a retreat in oil prices on Friday helped ease some of the pressure on global bond markets, pulling yields back from levels not seen for decades and allowing the dollar to surrender part of its recent gains.
Brent crude futures fell 1% to $103.30 a barrel after US President Donald Trump said Washington would not launch an attack on Iran before next month's US elections. He also indicated that discussions with Tehran over the ongoing conflict had been productive, helping to reduce immediate concerns about potential supply disruptions.
Despite the decline, oil prices remain elevated, reflecting the continuing geopolitical risk premium attached to energy markets.
Analysts at investment bank ING cautioned that the dollar could retain its strength if energy prices remain high enough to reinforce expectations of further interest rate increases by the US Federal Reserve. Such a scenario could keep pressure on currencies including sterling and the euro.
Francesco Pesole, a currency strategist at ING, said the bank saw little evidence that a broader reversal in the dollar's strength was imminent.
He also noted that oil markets had yet to fully remove the geopolitical premium that has kept prices above $100 a barrel, even as concerns about supplies from the Gulf region have eased.
The outlook for sterling and other major currencies is therefore likely to remain closely tied to developments in energy markets, geopolitical tensions and expectations for central bank policy. While cheaper oil has offered some short-term relief, persistent inflationary risks and elevated borrowing costs continue to shape investor expectations.
