Pound Hits Over Two-Month High Amid US-Iran Deal Hopes

The pound remained above $1.32, recovering from a recent seven-month low, after Andy Burnham, the sole candidate to succeed Keir Starmer, has vowed to significantly devolve fiscal powers from Westminster to local authorities if elected, while maintaining fiscal discipline. In his first major speech after winning a Commons seat, Burnham criticized the UK’s "stark imbalance" between national and local government resources, calling it a barrier to growth. Still, he refused to disclose potential ministerial appointments, stating he would announce them only after the Labour leadership contest concludes. Sterling remains down over 1.5% this month against the USD, pressured by political uncertainty, a stronger dollar, and shifting rate expectations after the US-Iran ceasefire. With the Strait of Hormuz reopened, oil prices and inflation forecasts have fallen, reducing bets on Bank of England hikes, while the US Federal Reserve's hawkish stance supports US rate increase expectations.

The British pound rose to $1.322 on Monday, attempting to rebound from a seven-month low, as investors are closely watching Andy Burnham’s upcoming speech for insights into his economic approach. Burnham, the sole declared candidate to succeed Prime Minister Keir Starmer, is expected to advocate for more expansionary fiscal policies after returning to Westminster this month. Sterling remains down over 1.5% against the USD this month, the sharpest decline since March, amid domestic political uncertainty following Starmer’s resignation and a stronger dollar. The dollar’s strength stems from an interim US-Iran peace deal and shifting expectations for US interest rates. Since the ceasefire reopened the Strait of Hormuz, oil prices and inflation expectations have dropped, leading markets to scale back bets on Bank of England rate hikes. Meanwhile, Fed Chair Kevin Warsh’s hawkish stance has reinforced expectations of US rate increases this year.

The British pound weakened below $1.32, nearing its lowest level in seven months, as investors balanced easing political uncertainty with weaker UK economic data. Investors welcomed signs that a prolonged Labour leadership contest was becoming less likely after Keir Starmer announced his resignation. Andy Burnham is now seen as the leading candidate to replace him, with backing from former health secretary Wes Streeting reducing the risk of a drawn-out leadership battle. On the economic front, June flash PMI data showed a weaker picture, with the composite index falling to a 14-month low of 49.4, below expectations and signalling a second consecutive month of contraction. Rising input costs and accelerating services inflation continue to complicate the Bank of England’s policy outlook.