Sterling edges up as U.S.-Iran deal hopes lift risk sentiment

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Sterling rises on U.S.-Iran deal

Highlights

Sterling rises 0.15% to $1.3426 as improved risk appetite follows U.S.-Iran deal hopes, while euro gains 0.22% against the pound to 86.43 pence.
Brent crude futures fall 5.3% to $82.75 a barrel, but the U.S. dollar index holds steady at 99.52 pending further clarity on the deal’s finalization.
Markets expect the Bank of England to keep rates unchanged Thursday, but sterling remains sensitive to upcoming UK data and possible political upheaval if Andy Burnham wins the Makerfield by-election.

Market reaction before key UK events

As reported by Reuters, the pound is rising 0.15% against the U.S. dollar to $1.3426, while the euro is up 0.22% versus sterling at 86.43 pence as broader risk appetite improves.

Oil prices are falling sharply, with Brent crude futures down about 5.3% to $82.75 a barrel, but the wider foreign exchange response remains restrained. The U.S. dollar index is steady at 99.52, near its lowest level since June 5, suggesting investors are waiting for more clarity on whether the agreement will hold.

The memorandum of understanding is scheduled to be formally signed on Friday in Switzerland. However, the exact terms are not yet known, and uncertainty remains over Tehran's nuclear program, a central issue in the negotiations.

Kit Juckes, chief FX strategist at Societe Generale, says foreign exchange investors are likely to welcome the development while watching closely for any sign that the agreement could unravel.

BoE decision and UK politics in focus

Sterling also faces a busy domestic calendar this week, with inflation, labour market and retail sales data all due. The Bank of England announces its latest interest rate decision on Thursday, and policymakers are widely expected to leave rates unchanged while markets look for guidance on the policy path ahead.

Money markets are pricing in one quarter-point rate hike from the BoE this year after scaling back expectations for tighter policy in recent days. That shift leaves sterling sensitive not only to economic data but also to any change in central bank language.

Political risk is also in focus ahead of Thursday's Makerfield by-election, which could return Greater Manchester Mayor Andy Burnham, Labour's candidate, to Westminster. A Burnham victory could trigger a leadership contest that may put Prime Minister Keir Starmer under pressure, adding another source of uncertainty for UK fiscal policy and the pound.

Nick Rees, head of macro research at Monex Europe, says his team remains bearish on sterling because of the political developments they expect in the near term, particularly if Burnham wins and a leadership challenge to Starmer emerges quickly.

Our earlier coverage of the Makerfield by-election focused on why the vote has taken on national significance, with an Andy Burnham win widely seen as a possible trigger for a Labour leadership contest. We also outlined how voter calculations, tactical voting and the presence of Reform UK have turned a local race into a broader test of sentiment that could add pressure on Keir Starmer and increase political uncertainty.

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