Sterling Slumps as Starmer Faces Growing Calls to Resign

The pound tumbled toward $1.35, down from near two-month highs touched last week, as political instability in the UK deepened. Over 70 Labour MPs have urged Prime Minister Keir Starmer to resign following the party’s poor performance in last week’s local elections, with investors fretting that a potential change in leadership could lead to higher fiscal spending in an effort to regain voter support. Elsewhere, concerns persist over the fragile US-Iran ceasefire, with Brent crude oil prices rising above $105 a barrel after US President Trump dismissed Iran’s latest response to peace proposals as unacceptable. The uncertainty has prompted investors to increase bets on further interest rate hikes by the Bank of England, with markets now pricing in nearly three additional increases before year-end.

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 faced pressure to defend his leadership after Labour's weak local election results, as his speech offered no fresh policies. Speculation is growing over a potential leadership challenge, but Starmer has vowed to resist any attempt to oust him. On the macro front, REC/KPMG data showed hiring for permanent positions in the UK falling at the fastest pace in three months in April.

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.