Sterling is set for its highest monthly gain against the euro in over a year due to the surge in British short-term borrowing costs and its largest monthly fall on the dollar in five months. The Iran war has also impacted markets. Analysts from BNP Paribas suggest that the UK and the euro import more energy than they produce, which weakens each currency through terms-of-existence and growth channels, reducing household spending. However, they believe that sterling's performance will hold up due to higher energy prices forcing central banks to keep policy tight to prevent second-round inflation. This has led to British rate-sensitive two-year yields up 94 basis points in March, the most since late 2022.