Financial markets start paying attention to US-Iran tensions

logo18year
Daily Market Report
Currency insight from
Excel Currencies
banner1

waterman

Written by Dan Waterman
February 19th 2026
Oil prices spike and global stocks fall, as the world starts preparing for a potential US-Iran war..

Last summer, the US military launched three successful strikes on Iranian nuclear facilities and we could be about to see something similar as soon as this weekend.

US military forces (including the world's largest warship) are expected to be in place to strike by mid-March if Iran fail to agree to the US' nuclear programme. Talks between the two nations remain ongoing in Switzerland. 

Naturally, potential conflict like this rattles financial markets and so traders have flocked once again to safe-haven assets (not GBP) today.

Elsewhere, we have some analyst updates on UK inflation, BoE interest rates and the Pound's value after this week's UK data.

JP Morgan see the BoE cutting to 3.25% by June (our forecast also maintaining the one cut per quarter narrative). Remember, the UK & US are never more than 0.5% away from each other on interest rates and with the Fed expected to hold at 3.75% until May/June (when a new Fed chair arrives), this makes the situation even more plausible.

On this basis and with all things being equal, GBP v EUR will head lower in H1 because of losing the interest rate premium (investment bank Nomura are fully expecting to see £-€1.11 mid-market) and GBP v USD to head lower by a similar 3% amount. 

In the second half of the year, many analysts think the UK's interest rate will end up at 3.25% (so maybe no cuts in H2) and that inflation may prove to be stickier than first thought (Oxford Economics, Handelsbaken & Lloyds agree).

Also, President Trump wants a weaker USD and lower interest rates and he will very likely get his wish in the second half of the year. On these points, we should see GBP v EUR improve to maximum £-€1.15 mid-market levels and GBP v USD up by as much as 5%. 

Remember, this is all 'ifs and buts' and not inclusive of any other variable entering the market or a current one becoming more prominent. 

Market volatility will undoubtedly continue tomorrow as we have plenty of important economic data being released by the majors (hopefully some positive UK news), as-well-as potentially 'protective' investor moves as we head into an uncertain looking weekend.