Sterling Slumps Amid Middle East Tensions and UK Bond Market Pressures

The British pound has fallen to a three-week low against the US dollar due to escalating tensions in the Middle East and increased pressure on UK government bonds. Investors are seeking the safety of the dollar amid concerns over a potential energy shock.

UK gilt yields have reached fresh 18-year highs, narrowing the government's fiscal room and raising the possibility of tax increases ahead of Finance Minister John Healey's first budget on October 28.

The Bank of England is expected to hold interest rates at 3.75% this month, with markets pricing in a 25 basis point hike by year-end amid persistent inflation concerns.