Sterling Holds at Over Two-Month High on US-Iran Hopes

The British pound rose above $1.36, hitting its highest level since mid-February, as the US dollar’s safe-haven demand eased amid optimism over a potential US-Iran agreement to end hostilities. Washington sent Iran a one-page memorandum outlining steps to gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports, with investors now awaiting Tehran’s response. Meanwhile, voters across England, Scotland, and Wales cast ballots today in elections that will determine control of the Scottish and Welsh parliaments and over half of England’s councils. The vote is a key test for Prime Minister Keir Starmer, with polls suggesting Labour may face setbacks after policy missteps and tax hikes. On monetary policy, markets now expect about 50 basis points of tightening, equivalent to two rate hikes, by the end of the year, down from earlier projections of up to three.

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.