Pound-Australian Dollar Downside a Tactical Iran Hedge: Barclays

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The pound could remain vulnerable to further losses against the Australian dollar as the Middle East conflict continues to reshape global currency markets, according to strategists at Barclays.

The bank argues that energy-driven geopolitical shocks tend to favour currencies tied to commodity exports while weighing on those of major energy importers.

That dynamic places the Australian dollar in a relatively strong position while leaving sterling exposed.

“Building portfolios that balance this risk-reward makes sense,” Barclays says.

“In G10, we think solid terms of trade stories, such as the AUD, can benefit together with underpriced safe havens, such as the CHF, while energy-sensitive currencies such as the EUR, GBP and Yen can remain funders.”

Pound-Aussie has come under immense pressure in 2026, falling from 2.0183 on January 02 to a low at 1.8805 on Tuesday. But since then, the pair has stabilised, and the rate of decline is slowing.

In fact, the RSI has lifted back above 30, confirming oversold conditions have finally reversed. As our week-ahead forecast noted, we have rarely seen a currency pair stay at oversold conditions for the amount of time GBP/AUD has during 2026.

But the logic behind the belief that more losses await rests on how rising energy prices affect different economies.

Australia is a major exporter of energy and raw materials, meaning higher commodity prices tend to boost national income and support the currency.

By contrast, economies such as the UK and the euro area are more dependent on imported energy, which can worsen trade balances and weigh on growth.

Barclays says this divergence makes GBP/AUD a useful expression of the broader geopolitical theme.

“In G10 FX, we favour exposure to currencies supported by strong secular tailwinds and limited exposure to energy risks (such as the AUD), funded in European currencies facing energy risks along with challenging local dynamics (such as the GBP).”

The bank notes that its recommendation to sell GBP/AUD has so far held up well despite bouts of volatility in global markets.

“Our short GBPAUD recommendation has so far weathered risk asset volatility well, even as initial aggregate positioning was long AUD and short GBP.”

Barclays believes the trade reflects deeper structural forces supporting the Australian currency:

“This, in our view, is testament to Australia’s strong fundamentals and the AI-linked commodity cycle, which has dampened traditional risk sentiment correlations and points to further downside across most of the discussed scenarios.”