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 todays 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 countrys 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 Trumps 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 Irans 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.