The Pound weakened on Monday as escalating tensions between the US and Iran over the weekend increased fears that a two-week ceasefire could break down, prompting investors to move toward the safer US Dollar.
At the same time, traders were watching UK markets closely ahead of an expected parliamentary address by Prime Minister Sir Keir Starmer, who is facing resignation pressure following revelations that former US ambassador Peter Mandelson had not passed a vetting process.
Sterling was last down 0.1% at $1.3503 as the Dollar strengthened, while the Euro rose 0.1% against the Pound to 87.10 pence, Reuters news agency reports.
The US Dollar advanced as equity markets declined and oil prices increased after Iran announced it would not take part in a second round of negotiations.
Tensions remained elevated following US reports that it had seized an Iranian cargo vessel accused of attempting to breach the blockade of the Strait of Hormuz.
Renewed concerns about the fragility of the Iran ceasefire are resurfacing, driving oil prices higher and leaving investors uneasy.
The Pound remained close to Friday’s two-month peak of $1.3599, reflecting investor confidence that the worst of the Iran conflict may have passed.
Sterling has risen around 2% this month, reversing a 1.9% decline in April, as optimism over a potential ceasefire has encouraged investors to move away from the Dollar.
However, the currency could come under pressure if Keir Starmer is forced out amid the latest controversy surrounding Peter Mandelson’s appointment as US ambassador, a row fuelled by his reported connections to convicted sex offender Jeffrey Epstein.
On Thursday, The Guardian reported that Peter Mandelson had failed a security vetting process, adding to the mounting pressure on Keir Starmer.
It is expected to be a difficult session for the PM, with pressure likely to persist into tomorrow when the senior civil servant involved in the approval process is set to testify at a parliamentary hearing.
As a result, GBP/USD may surrender a significant portion of its recent gains over the course of the week.
Some investors believe that if Starmer were replaced, his successor might steer Labour Party policies further to the left, potentially leading to higher government borrowing.