The pound sterling experienced a downturn on Monday, influenced by a combination of escalating international tensions and domestic political pressures. Investors sought the relative safety of the US dollar amid heightened friction between the US and Iran over the weekend.
The currency’s decline also coincided with growing calls for the resignation of Prime Minister Sir Keir Starmer. This pressure mounted after it emerged that Peter Mandelson, a former US ambassador, had reportedly failed a vetting process.
Against the dollar, the pound was last down 0.1 per cent, trading at \$1.3503. Meanwhile, the euro strengthened against sterling, gaining 0.1 per cent to reach 87.10 pence.
The dollar’s overall strength was bolstered as global stock markets fell and oil prices climbed, following Iran’s announcement that it would not participate in a second round of peace talks. Tensions were further inflamed by reports of the US seizing an Iranian cargo ship attempting to breach its blockade of the Strait of Hormuz
Susannah Streeter, chief investment strategist at Wealth Club, commented: “Fresh worries are percolating about the fragility of the Iran ceasefire, sending oil prices higher and keeping investors on edge.”
Domestically, Prime Minister Starmer is under scrutiny ahead of a parliamentary address, as a scandal unfolds regarding Mandelson, whose proposed appointment as the UK’s ambassador to the US failed a vetting process. The controversy is linked to Mr Mandelson’s past associations with convicted paedophile Jeffrey Epstein.
The Guardian reported last Thursday that Mandelson had failed a security vetting, intensifying pressure on Starmer.
Chris Turner, global head of markets at ING, noted: “This will be a tough session for PM Starmer and one which will extend into tomorrow, when the top civil servant involved in the approval process also appears at a parliamentary hearing.”
He added: “GBP/USD could well hand back a big chunk of recent gains this week.”
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Despite Monday’s slip, the pound remains close to Friday’s two-month high of $1.3599, reflecting some market optimism that the worst of the Iran conflict may be over.
Sterling has seen a 2 per cent rise this month, following a 1.9 per cent decline in April, driven by hopes of a ceasefire deal.
However, some investors fear that a potential replacement for Starmer could lead Labour policies further to the left, potentially increasing government borrowing.
