Pound Strengthens as UK Awaits New PM

The pound climbed to $1.343, its highest since mid-June, and marking its second consecutive weekly increase against the dollar. This surge follows expectations that the Bank of England will raise interest rates later this year, with money markets pricing in at least one hike and a 25% chance of a second. Sterling has rebounded over 2% since hitting a seven-month low in late June, after Labour Prime Minister Keir Starmer announced his resignation. Andy Burnham is set to take over as party leader when the leadership contest concludes on Friday, July 17, and is expected to formally become prime minister on Monday, July 20. The pound’s rise also comes as Brent crude reached two-week highs this week due to renewed US-Iran hostilities, though peace negotiations are set to continue. With the UK more reliant on energy imports than many of its neighbors, its markets remain particularly sensitive to oil price fluctuations.

The pound rose back above $1.34, its strongest level since mid-June, as investors increased bets on Bank of England interest rate hikes amid escalating tensions between the US and Iran. Investors also weighed the latest remarks by US President Donald Trump, who stated that Iran still wants to make a deal "badly." Crude prices reached two-week highs on Wednesday after fresh US strikes in Iran, with Trump declaring the Iran ceasefire over, raising doubts about the peace deal’s stability and heightening inflationary pressures. Investors now fully price in a 25-basis-point BoE rate hike by year-end, most likely in December. Politically, Andy Burnham, the frontrunner to succeed Keir Starmer as prime minister, has yet to name a finance minister, with former energy minister Ed Miliband emerging as the likely choice. Sterling’s resilience amid recent political turmoil suggests much of the negative news has already been priced in.

The pound eased back to $1.335, retreating from a three-week high, as rising oil prices stoked inflation concerns and boosted bets on Bank of England rate hikes, darkening the UK’s economic outlook. Brent crude climbed to a two-week high after fresh US strikes in Iran, raising doubts over the peace deal’s stability and intensifying inflationary pressures. US President Trump heightened tensions by declaring at NATO’s Ankara summit that, as far as he is concerned, the Iran ceasefire is over. Investors now fully price in a 25-basis-point BoE rate hike by year-end, up from a 75% probability before Trump’s remarks. Politically, Andy Burnham, the frontrunner to replace Keir Starmer as prime minister, has yet to appoint a finance minister, with former energy minister Ed Miliband emerging as the likely pick. Sterling’s resilience amid recent political turmoil suggests much of the negative news has already been factored in.