Pound Hits Over Two-Month High Amid US-Iran Deal Hopes

The British pound climbed above $1.36, reaching its strongest level since mid-February, as the US dollar’s safe-haven appeal faded amid growing optimism over a potential US-Iran agreement. According to Axios, the White House is close to a one-page Memorandum of Understanding with Iran to end the conflict and begin nuclear negotiations, the closest the parties have been to a deal since the conflict started. Tehran is expected to respond within 48 hours, though no agreement is finalized. Investors also focused on Britain’s municipal elections on Thursday, with polls suggesting Prime Minister Keir Starmer’s Labour Party might face a significant setback. On monetary policy, financial markets now price in about 50 basis points of tightening, equivalent to two rate hikes, by year-end, down from up to three hikes priced in earlier this month.

The British pound climbed toward $1.36, approaching last week’s two-month peak of $1.366, as optimism grew over a potential US-Iran agreement. US President Donald Trump announced a pause in "Project Freedom," the operation guiding ships through the Strait of Hormuz, citing "great progress" in mediated talks with Iran. However, he emphasized that the US blockade of ships to and from Iranian ports would "remain in full force and effect," leaving uncertainty over the Strait’s future. Meanwhile, investors focused on Britain’s municipal elections on Thursday, with polls suggesting Prime Minister Keir Starmer’s Labour Party might face a significant setback. Markets are pricing in at least two quarter-point rate hikes from the Bank of England this year, with Governor Andrew Bailey describing the recent hold as a "difficult judgement call," warning that waiting for clearer inflationary pressures could risk a delayed response.

The pound traded slightly above $1.35, retreating from last week’s two-month high of $1.366, as investors turned their attention to Britain’s municipal elections on Thursday, with polls indicating Prime Minister Keir Starmer’s Labour Party could suffer a notable setback. Meanwhile, oil prices remained near four-year highs amid ongoing Middle East tensions, with the US and Iran locked in a dispute over control of the Strait of Hormuz. Markets are pricing in nearly three quarter-point rate hikes from the Bank of England this year. Yet, uncertainty persists after the BoE kept rates unchanged, citing the broad economic fallout from the Iran conflict. Governor Andrew Bailey called the decision a "difficult judgement call," cautioning that delaying action until inflationary pressures are evident could lead to a late response.