Pound Holds Near Mid-February Peak

The pound stayed above $1.36, near its highest level since mid-February, as investors weighed escalating US-Iran tensions and the aftermath of last week’s UK local elections. President Donald Trump rejected Iran’s latest proposal as “totally unacceptable,” accusing Tehran of “playing games.” While reports claimed Iran had offered to export part of its uranium stockpile, with the possibility of repatriation if talks fail, Iran denied the reports, calling Trump’s demands “excessive.” At home, Prime Minister Keir Starmer is scheduled to deliver a key speech on Monday to reassure Labour MPs of his leadership following significant election losses and mounting speculation about a potential challenge. On the macro front, the UK’s jobs market showed persistent weakness, with hiring for permanent positions falling at the fastest pace in three months in April, according to a report from the Recruitment and Employment Confederation and KPMG.

The pound climbed above $1.36, reaching its strongest level since mid-February, as Prime Minister Keir Starmer vowed to stay in office despite early election results showing significant losses for his Labour Party. Nigel Farage’s Reform UK gained ground in English council elections, while Labour lost hundreds of seats, though the decline was less severe than some of the worst-case forecasts. Many results are still expected to be announced after markets close today and into the weekend. Meanwhile, optimism over a potential US-Iran peace deal eased concerns that persistent inflation could keep interest rates elevated for longer, after President Trump maintained that the ceasefire remained "in effect" despite recent clashes. Financial markets continue to anticipate two Bank of England rate hikes by year-end.

The pound climbed toward $1.36, close to an over two-month high, as investors assessed the fallout from UK local and devolved government elections and the growing instability in the Middle East. Early election results showed Nigel Farage’s Reform UK gaining traction in English councils, while Prime Minister Keir Starmer’s Labour Party lost nearly half the seats it was defending, though the decline was less steep than some had feared. The Conservative Party also faced significant losses, surrendering over a quarter of its seats, while the Greens nearly doubled their count and the Liberal Democrats made progress. At the same time, geopolitical tensions intensified after Washington and Tehran exchanged fire in southern Iran, pushing Brent crude prices back to $100 a barrel, despite President Trump’s assertion that the ceasefire was still "in effect." Markets are pricing in roughly 60 bps of Bank of England rate hikes, equivalent to at least two increases, before year-end.