The British pound fell in European trading on Tuesday against a basket of global currencies, resuming losses that paused temporarily yesterday during a recovery attempt from a six-week low against the US dollar, amid ongoing political tensions in the United Kingdom.

Demand for the US dollar as a safe-haven asset also returned as investor sentiment remained fragile while markets continued monitoring developments in the Iran war, particularly after President Donald Trump delayed a military strike on Iran following mediation efforts led by major Gulf leaders.

The International Monetary Fund said the Bank of England does not need to raise interest rates and may instead need to cut them. Investors are now awaiting important UK labor market data later today to reassess expectations surrounding British interest rates.

Price overview

• British pound exchange rate today: The pound fell around 0.2% against the dollar to $1.3409, from today’s opening level of $1.3432, while recording a session high of $1.3438.

• On Monday, the pound gained 0.85% against the dollar, marking its first gain in six sessions after earlier touching a six-week low of $1.3303.

Political tensions

The British political scene is moving toward a critical phase of instability, as Prime Minister Keir Starmer faces mounting pressure to resign following the resignation of Health Secretary Wes Streeting and several government officials after the ruling Labour Party suffered a heavy defeat in local elections amid strong gains for Reform UK, right-wing parties, and the Greens.

While Starmer remains determined to stay in office and warns of political chaos in the country, internal efforts are intensifying to support Greater Manchester Mayor Andy Burnham as a potential future leader of the Labour Party.

Potential future British prime minister Andy Burnham confirmed on Monday that if he takes office, he would not change the current fiscal rules designed to ensure the sustainability of the country’s debt.

These escalating political developments come as London adopts a cautious diplomatic approach externally, focused on protecting international shipping in the Strait of Hormuz through a multinational defensive mission while avoiding direct involvement in military conflict against Iran.

US dollar

The US Dollar Index rose 0.15% on Tuesday, resuming gains that paused temporarily yesterday and moving back toward a six-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The dollar gained support from safe-haven demand, as market sentiment remains fragile despite President Donald Trump’s decision to delay a military strike on Iran following Gulf mediation efforts, while awaiting tangible progress in peace talks being conducted under Pakistani sponsorship.

Latest developments in the Iran war

• Trump stated on the Truth Social platform that he agreed to postpone the planned Tuesday attack on Iran following intensive contacts with Gulf leaders in order to grant the Pakistani mediation additional time.

• Trump instructed the Department of Defense (Pentagon) to remain on full alert and prepared to proceed with military action “from every direction” if negotiations fail.

• The White House insists that any final agreement must include a strict and fundamental condition preventing Iran entirely from obtaining a nuclear weapon.

• Tehran officially submitted an updated 14-point response to the US administration through the Pakistani mediator. Iran is demanding a long-term truce, international guarantees, and the lifting of the naval blockade.

• US officials said the new Iranian proposal is “insufficient and does not include meaningful improvements,” although Trump later described the ongoing negotiations as showing “very positive progress” following the decision to delay the strike.

• The United States is demanding a 20-year freeze on Iran’s nuclear program, while Tehran continues to reject the proposal.

British interest rates

• The International Monetary Fund said on Monday that the Bank of England does not need to raise interest rates and may instead need to lower them.

• Markets are currently pricing the probability of a Bank of England rate hike at the June meeting at around 45%.

UK labor market

To reassess the above expectations, investors are awaiting key UK labor market data later today, including April unemployment benefit claims, along with March unemployment and average wage figures.

Outlook for the British pound

At Economies.com, we expect that if UK labor market data comes in less aggressive than markets currently anticipate, expectations for a British interest rate hike in April will decline, placing further negative pressure on the pound sterling.

The Japanese yen fell in Asian trading on Tuesday against a basket of major and minor currencies, extending its losses for a seventh consecutive session against the US dollar and approaching its lowest level in three weeks, as investors assessed the latest developments surrounding the Iran war, particularly after Trump delayed a military strike on Iran following mediation efforts by major Gulf leaders.

Government data released in Tokyo today showed that Japan’s economy grew better than expected in the first quarter of this year, strengthening expectations that the Bank of Japan could raise interest rates when it meets in June.

Price overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.15% to ¥159.03, from today’s opening level of ¥158.79, while recording a session low of ¥158.71.

• The yen ended Monday trading down by less than 0.1% against the dollar, marking its sixth consecutive daily loss, and touched a three-week low of ¥159.08 amid fears of renewed conflict with Iran.

US dollar

The US Dollar Index rose 0.15% on Tuesday, resuming gains that paused temporarily yesterday and moving back toward a six-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The dollar gained support from safe-haven demand, as market sentiment remains fragile despite President Donald Trump’s decision to delay a military strike on Iran following Gulf mediation efforts, while awaiting tangible progress in peace talks being conducted under Pakistani sponsorship.

Latest developments in the Iran war

• Trump stated on the Truth Social platform that he agreed to postpone the planned Tuesday attack on Iran following intensive contacts with Gulf leaders in order to grant the Pakistani mediation additional time.

• Trump instructed the Department of Defense (Pentagon) to remain on full alert and prepared to proceed with military action “from every direction” if negotiations fail.

• The White House insists that any final agreement must include a strict and fundamental condition preventing Iran entirely from obtaining a nuclear weapon.

• Tehran officially submitted an updated 14-point response to the US administration through the Pakistani mediator. Iran is demanding a long-term truce, international guarantees, and the lifting of the naval blockade.

• US officials said the new Iranian proposal is “insufficient and does not include meaningful improvements,” although Trump later described the ongoing negotiations as showing “very positive progress” following the decision to delay the strike.

• The United States is demanding a 20-year freeze on Iran’s nuclear program, while Tehran continues to reject the proposal.

New warnings

Japanese Finance Minister Satsuki Katayama told reporters on Monday that Japan remains ready to act against excessive volatility in the foreign exchange market at any time, while ensuring that any intervention to support the yen through dollar selling does not lead to higher US Treasury yields.

Japanese economy

Data released today in Tokyo showed that Japan’s economy expanded at an annualized rate of 2.3% in the first quarter of this year, beating market expectations for 1.7% growth, after the world’s fourth-largest economy recorded growth of 1.3% in the fourth quarter of last year.

Japanese interest rates

• Following the above data, markets increased pricing for the probability of a quarter-point interest rate hike by the Bank of Japan at its June meeting from 80% to 85%.

• Investors are awaiting additional data on inflation, unemployment, and wage growth in Japan to reassess those expectations further.

Chicago grain and soybean futures rallied sharply on Monday after the White House announced that China had pledged to purchase at least $17 billion worth of US agricultural products over the next three years.

The most active wheat contract on the Chicago Board of Trade rose 3.2% to $6.56-1/4 per bushel by 10:40 GMT. Corn also climbed 3.1% to $4.70 per bushel, while soybeans gained 2% to $12.01 per bushel.

The US administration said China made the commitment during meetings between President Donald Trump and Chinese President Xi Jinping last week, according to a White House fact sheet released Sunday.

The White House clarified that the $17 billion figure does not include soybean purchase commitments China made in October 2025, adding that markets had not expected Beijing to raise its soybean import targets above 25 million metric tons.

A Beijing-based analyst said the White House announcement suggests China may increase purchases of US corn, wheat, sorghum, and meat products in addition to soybeans.

Despite this, Chinese agricultural imports from the United States still face an additional 10% tariff following rounds of retaliatory duties imposed last year, which sharply reduced trade between the two countries.

“The agreement with China remains vague and lacks details, and China has not fully honored similar commitments in the past,” a European trader said. “But it’s a large number, and there are hopes China could return to the massive pace of US grain and soybean purchases seen before the trade dispute.”

China’s Ministry of Commerce said Saturday that both sides are seeking to strengthen bilateral trade, including agricultural products, through measures such as reducing reciprocal tariffs on a range of goods, though it did not specify which products would be included.

Meanwhile, elevated US wheat prices have prompted some American buyers to import wheat from Poland, according to European traders on Monday.

Oil prices climbed on Monday after a report stated that the United States considers Iran’s latest proposal to end the war insufficient.

Global benchmark Brent crude futures for July delivery rose more than 2% to settle at $112.10 per barrel. US West Texas Intermediate crude futures for June delivery also gained nearly 3% to close at $108.66 per barrel.

An Iranian Foreign Ministry spokesperson said negotiations are still ongoing through Pakistan, adding that both Washington and Tehran have submitted their latest comments on the Iranian proposal.

Axios quoted a senior US official as saying the proposal does not represent a “meaningful improvement” and remains insufficient to secure an agreement. The report also said that President Donald Trump is expected to meet with his national security team on Tuesday to discuss military options.

Meanwhile, Iran’s Tasnim news agency reported that the United States had offered temporary relief on oil sanctions, a key Iranian demand. However, a US official told CNBC that the Iranian claims were inaccurate.

Over the weekend, Trump warned that Iran “better move” toward reaching a deal, saying delays in reopening the Strait of Hormuz could lead to renewed military conflict. The president’s comments came as analysts pointed to record declines in global oil inventories.

“Iran’s clock is ticking, and they better move fast or there will be nothing left,” Trump wrote Sunday on Truth Social, adding that “time is running out.”

Despite a fragile ceasefire reached in April, tensions remain high between Iran and the United States, with Tehran continuing to keep the Strait of Hormuz largely closed while the Trump administration maintains a blockade on Iranian ports.

Before the war began, nearly one-fifth of global oil and gas supplies passed through the strait.

In its latest monthly report, the International Energy Agency warned that global oil inventories are falling at a record pace as the Strait of Hormuz remains closed, saying that “the rapid decline in reserves, combined with ongoing disruptions, could signal further price spikes ahead.”

According to a report issued last week by UBS, inventories could approach historic lows of 7.6 billion barrels by the end of May if oil demand remains at current levels.

Europe faces growing oil shortage risks

Jeff Currie, co-chairman of commodities exchange Abaxx, told CNBC’s Squawk Box Europe that concerns over oil supplies are likely to intensify as inventories continue to decline.

“Anyone actually operating in this industry will tell you the situation is bad. The Iranians want to inflict damage. The issue here is not the price of oil, but its availability,” Currie said.

“There’s no actual shortage yet, but Europe could face one by the end of the month. The market isn’t overly worried right now, but with the UK’s late-May holiday and the US summer driving season approaching, we’ll begin to feel the strain,” he added.