Sterling Climbs to 1-Month High after Budget Plans

The pound was trading around $1.342 at the end of May, set for a monthly loss of over 1% against the USD. The decline came amid a mix of rising political uncertainty, following UK Prime Minister Keir Starmer’s Labour Party defeat in local elections, and ongoing US-Iran negotiations to end the three-month war, which has contributed to global inflation pressures. A tentative deal to extend the ceasefire by 60 days remains pending President Donald Trump’s approval. The UK’s economic challenges, including its lack of tech stocks, heavier reliance on oil, and overall pessimism about growth, have added to the currency’s struggles, as has its vulnerability to energy shocks. On the monetary policy front, investors have slightly scaled back expectations for further Bank of England rate hikes this year, as oil prices eased from four-year highs and recent UK data pointed to a cooling labor market, softer-than-expected inflation, and signs of moderating economic activity.

The pound pared earlier losses to trade slightly higher above $1.34, as investors weighed developments in Middle East diplomacy alongside shifting expectations for UK interest rates. According to Axios, US and Iranian negotiators have reportedly agreed on a 60-day memorandum of understanding to extend a ceasefire and begin negotiations over Iran’s nuclear program, though final approval from President Trump remains pending. Despite the tentative progress, geopolitical tensions persist, with continued US–Iran exchanges and renewed Israeli strikes on Hezbollah targets in Lebanon despite a fragile ceasefire. The resulting decline in oil prices helped ease inflation concerns, prompting investors to slightly scale back expectations for further Bank of England rate hikes. Sentiment was also influenced by recent UK data pointing to a cooling labor market, softer-than-expected inflation, and signs of moderating economic activity.

The pound slipped to $1.34 as Middle East tensions flared, with renewed US-Iran conflict driving oil prices up and exposing the fragility of recent peace efforts. Brent crude rose to nearly $97 a barrel after the US conducted airstrikes on an Iranian military site and imposed sanctions to block Iran’s revenue from ships in the Strait of Hormuz. A US official described the strikes as defensive and reaffirmed the country’s commitment to the month-old ceasefire. At the same time, Kuwait reported countering hostile drone and missile threats. The heightened tensions in the region prompted traders to boost bets on Bank of England rate hikes, despite a series of recent weak data releases pointing to sluggish economic activity in the UK.