Sterling dips as US-Iran peace talks falter

LONDON: The pound slipped on Monday after tensions between the US and Iran rose sharply over the weekend, raising the prospect that a two-week ceasefire might collapse and pushing investors towards the safe-haven US dollar.

Market participants were also keeping an eye on UK assets as British Prime Minister Sir Keir Starmer prepared to address parliament as he faces calls to resign after it emerged former US ambassador Peter Mandelson had failed a vetting process.

The pound was last down 0.1% at $1.3503 as the dollar rose.

The euro was 0.1% higher against the pound at 87.10 pence.

The US currency rose as stocks fell and oil prices climbed after Iran said it would not participate in a second round of negotiations.

Tensions were running high after the US said it had seized an Iranian cargo ship that tried to run its blockade of the Strait of Hormuz.

“Fresh worries are percolating about the fragility of the Iran ceasefire, sending oil prices higher and keeping investors on edge,” said Susannah Streeter, chief investment strategist at Wealth Club.

The pound was not too far off Friday’s two-month high of $1.3599, however, reflecting market optimism that the worst of the Iran conflict is over.

Sterling has climbed 2% this month, after falling 1.9% in April, as hopes of a ceasefire deal have caused investors to sell the dollar.

Yet the pound could fall if Starmer is ousted due to the latest scandal over Mandelson’s appointment as US ambassador, which was ignited over the latter’s close ties to convicted paedophile Jeffrey Epstein.

On Thursday, The Guardian reported that Mandelson had failed a security vetting process, heaping further pressure on Starmer.

“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,” said Chris Turner, global head of markets at ING.

“GBP/USD could well hand back a big chunk of recent gains this week.”

Some investors say Starmer’s replacement could lead Labour policies further to the left, increasing government borrowing.