Sterling Leads G10 Gains on UK Politics, Iran Diplomacy

Sterling led G10 gains on Tuesday. Investors responded positively to signs of increasing political clarity in the UK. Improving prospects for a broader Middle East settlement also supported risk sentiment. The Australian dollar followed as the second-strongest performer. The Canadian dollar found support after stronger-than-expected inflation data. The yen and Swiss franc lagged as safe-haven demand softened.

The initial market reaction to Prime Minister Keir Starmer’s resignation was muted. Sterling gained traction after the political succession picture became clearer. Manchester mayor Andy Burnham confirmed he will run for Labour leader. Wes Streeting, his most prominent potential rival, ruled himself out and endorsed Burnham. Those moves cut the risk of a prolonged leadership contest.

Additional support for sterling came from reports that Burnham would replace Chancellor Rachel Reeves if he becomes prime minister. Reeves has been tied to a constrained fiscal approach. Some investors interpret Burnham’s emergence as raising the possibility of a more growth-supportive fiscal stance, without abandoning overall discipline. Sterling’s rebound suggests the market is at least willing to test that narrative.

Geopolitical developments added to the risk-on tone. The US and Iran made progress during talks in Switzerland. Mediators Qatar and Pakistan described the discussions as “positive and constructive.” They announced a High Level Committee to oversee negotiations on nuclear issues and sanctions, with dispute resolution also covered. The parties agreed to create a de-confliction mechanism involving the US, Iran, and Lebanon to facilitate an end to military hostilities in Lebanon. Talks aim to reach a comprehensive agreement within 60 days.

The combination of clearer UK politics and continued Middle East diplomacy supported risk appetite. The broader FX picture still hinges on monetary policy. Sterling’s rebound does not yet signal a decisive shift against a dollar backed by hawkish Federal Reserve expectations. The larger battle between Fed strength and improving global sentiment remains unresolved.

Intraday bias in GBP/JPY turned neutral with the current rebound. A break below 212.36 would affirm that the move from 210.43 has completed as a correction, opening a deeper fall toward 211.23. A break above 215.59 would resume the rebound from 210.43 to retest 216.58.

In the bigger picture, no clear trend reversal has emerged. The long-term uptrend could extend to the 61.8% projection of the 148.93–208.09 move from 184.35 at 220.90 on resumption. A sustained break of the 55-week EMA at 207.11 would argue the pair is already in a medium-term downtrend toward 184.35 support.