Paul Spirgel

Sterling weakened on Tuesday, as a broad AI-driven equities selloff boosted the dollar, and faces a challenging outlook over the next week or so as the market awaits more news on the next UK government after the resignation of Keir Starmer.

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Sterling's near-term prospects appear cautiously positive as falling UK gilt and U.S. Treasury yields along with a stabilizing UK political and fiscal environment following Prime Minister Keir Starmer's resignation combine to provide a modest lift to GBP/USD.

Sterling's near-term path looks better supported than it has in weeks, with cooling geopolitical risk, steadier UK politics and a potentially softer Fed path forming a constructive backdrop for the pound. The pound continued its steady ascent on Monday, rising 0.2% in early North American trading as cable benefited from a cooling geopolitical environment—notably easing U.S.-Iran tensions—and a less-charged UK political climate following Prime Minister Keir Starmer’s resignation. Domestic fiscal anxieties are also abating after Andy Burnham committed to existing UK fiscal rules, a move that supports the recent decline in 10-year gilt yields down to 4.72% from their pre-resignation peaks near 5.2%.

The British pound has been climbing against the Canadian dollar for almost four years, though the ascent hasn't been a straight line — it has included several sharp ​pullbacks along the way. Technical analysis now points to another possible setback, raising ‌the question of whether it will be a brief pause or the start of something bigger.

Sterling looks vulnerable to further downside as it consolidates below 1.36, with bulls on the back foot amid heightened UK fiscal uncertainty, relentlessly rising long-end gilt yields and Middle East ructions lifting oil prices in a sign of persistent global inflation.

Sterling's path of least resistance points lower, and today's slight 0.2% GBP/USD uptick to 1.3512 masks a bear market taking shape, as British fiscal uncertainty, persistent UK inflation and Middle East-driven oil gains stoke fears of stickier global inflation.

Sterling's sloth-like rise from its early-September low near 1.3475 toward today's 1.3566 high has come as fiscal concerns ebb on softening long-end yields, and broad USD selling against other major currencies — but the recovery looks fragile and may leave the pound trailing as other major central banks shift to more hawkish tacks.

• AUD$ holds slight loss in NY afternoon, -0.12% at 0.7132; NorAm range 0.7134-0.7124

Sterling may struggle to extend its recovery, having bounced from a session low near 1.3350 after the widely expected 6-3 BoE MPC vote to hold bank rate steady, the bid emerging as traders looking further out the short-term curve infer the U.S. and UK will travel similar monetary policy paths into Q4 and 2027.