Paul Spirgel

Sterling is poised for continued downside pressure against the U.S. dollar in the near term, as a confluence of geopolitical anxieties, domestic headwinds, and monetary policy divergence weigh on GBP/USD.

The near-term outlook for sterling has reverted to caution as fluid geopolitical developments remain a top source of market uncertainty.

(Adds slug) Sterling faces a mixed outlook in the near term as geopolitical optimism clashes with looming domestic political risks and a shifting monetary policy landscape. The pound nudged higher, rising to 1.3460 in Asia session trading, the high end of its recent range, propelled by a sharp improvement in broader market sentiment following the announced, but not yet signed, U.S.-Iran peace deal.

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.

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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.