Sterling led gains in today as investors responded positively to signs of increasing political clarity in the UK, while improving prospects for a broader Middle East settlement supported risk sentiment more generally. Aussie followed as the second-strongest performer, with Canadian Dollar also finding support after stronger-than-expected inflation data. On the other side of the spectrum, Yen and Swiss Franc lagged as demand for traditional safe-haven assets softened.
The initial market reaction to Prime Minister Keir Starmer’s resignation was relatively muted, reflecting the widespread expectation that his departure was only a matter of time. However, Sterling gained traction as the political succession picture became clearer. Manchester mayor Andy Burnham confirmed he will run for Labour leader, while his most prominent potential rival, Wes Streeting, ruled himself out and endorsed Burnham’s candidacy. The developments significantly reduce the risk of a prolonged leadership contest and provide markets with greater visibility regarding the UK’s political direction.
Additional support for Sterling may have come from reports that Burnham would replace Chancellor Rachel Reeves if he becomes prime minister. Reeves has become associated with a highly constrained fiscal approach amid limited room for public spending. Some investors appear to be interpreting Burnham’s emergence as raising the possibility of a somewhat more growth-supportive fiscal stance, without abandoning overall fiscal discipline. While it is too early to draw firm conclusions about future policy, Sterling’s rebound suggests markets are at least willing to entertain a more constructive economic outlook under a Burnham-led government.
Meanwhile, geopolitical developments offered another source of encouragement for risk assets. The US and Iran made further progress during talks in Switzerland aimed at reaching a comprehensive agreement within 60 days. Mediators Qatar and Pakistan described the discussions as “positive and constructive” and announced the establishment of a High Level Committee to oversee negotiations on nuclear issues, sanctions and dispute resolution. The parties also agreed to create a de-confliction mechanism involving the US, Iran and Lebanon to facilitate the termination of military hostilities in Lebanon.
The combination of improving political visibility in the UK and continued progress in Middle East diplomacy helped support risk appetite across markets. Nevertheless, the broader FX picture remains heavily influenced by monetary policy expectations. Sterling’s rebound is notable, but it does not yet signal a decisive shift in the broader trend, particularly against a Dollar still underpinned by increasingly hawkish Federal Reserve expectations. For now, markets are rewarding stability, but the larger battle between Fed strength and improving global sentiment remains unresolved.
GBP/JPY Daily Outlook
Intraday bias in GBP/JPY is turned neutral first with current rebound. On the downside, below 212.36 will affirm the case that rebound form 210.43 has completed as a correction. Deeper fall would be seen to 211.23 support first. However, break of 215.59 will resume the rebound from 210.43 to retest 216.58.
In the bigger picture, there is no clear sign of trend reversal yet. The long term up trend could still extend to 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90 on resumption. However, sustained break of 55 W EMA (now at 207.11) will argue that it’s already in medium term down trend for 184.35 support.
