The Pound declined on Friday, moving in tandem with other risk-sensitive currencies like the Australian Dollar, following a wave of Israeli strikes on Iran that prompted investors to seek refuge in the more stable US Dollar.

Sterling dropped nearly 0.7%, hitting a low of $1.35225, while the Australian and New Zealand Dollars each fell by around 0.9%.

In contrast, the Euro gained 0.2% against the Pound, rising to 85.23 pence, Reuters reports.

Israel's strikes targeted key sites including nuclear facilities, missile production centres, and military leaders, with Iranian media and eyewitnesses reporting explosions, among them at the nation’s primary uranium enrichment plant.

In response, Iran launched approximately 100 drones toward Israeli territory, which Israeli forces are actively attempting to intercept, according to military spokesperson Brigadier General Effie Defrin

Iran continues to assert that its nuclear activities are intended solely for peaceful purposes.

British Prime Minister Keir Starmer expressed concern over the strikes, urging all parties involved to de-escalate and take steps to ease tensions.

“Until the danger of further escalation has passed, safe assets are likely to remain in demand,” said Commerzbank currency strategist Michael Pfister.

Investor sentiment was already fragile this week due to ongoing uncertainty surrounding the durability of the US-China trade truce and the broader economic effects of existing tariffs, even after some were eased from the elevated levels seen on 2^nd April.

Meanwhile, the pound has come under pressure amid a string of disappointing UK economic indicators, including weak manufacturing output, sluggish employment figures, and modest growth.

Adding to the cautious outlook, Chancellor Rachel Reeves unveiled a spending review that, according to analysts, did little to boost growth prospects and instead increased the likelihood of potential tax hikes later this year.

Traders anticipate that the Bank of England will implement another 0.25 percentage point rate cut in September, followed by an additional reduction by December. This would lower UK interest rates from the current 4.25% to approximately 3.7%.