Paul Spirgel

Sterling may find renewed upside in the near-term as Middle East de-escalation, lower oil prices, and shifting monetary policy expectations on both sides of the Atlantic combine to support the pound against the dollar. The recent signing of the U.S.-Iran memorandum of understanding has catalysed a meaningful decline in oil prices, providing broad relief to risk sentiment and potentially alleviating persistent inflationary pressures in the UK and globally. Should the drop in oil accelerate the disinflationary trend, the Bank of England's current hawkish stance — with one rate hike priced in by the October MPC meeting — is likely to soften.

Sterling faces an increasingly challenging near-term outlook, navigating a fluid monetary policy landscape and lingering geopolitical risks as dollar strength and domestic political risks weigh on the pair.

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.

Mapping the Market: Silver's losing streak could surrender more ground to gold

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.