Britsh Pound: Sterling Defies Rising Middle East Tensions

The Pound Sterling edged higher against the US dollar and held steady against the euro as markets shrugged off renewed US-Iran military strikes, betting that the fragile ceasefire will survive and a broader peace agreement remains within reach.

Markets Resilient as US and Iran Trade Strikes

The Middle East conflict re-escalated over the weekend.

Despite military strikes, the peace deal is still in place and markets had a muted reaction on Monday, with oil gaining less than 2%,

Sterling has been resilient as the UK braces for a new Prime Minister.

Markets started the week with notable resilience in light of the weekend news as the US and Iran traded strikes, testing a fragile ceasefire agreement reached earlier this month. The US military hit Iranian targets near the Strait of Hormuz in response to a drone attack on a commercial vessel. Iran fired back at US-linked sites. Both sides then agreed to pause further attacks and keep talking.

Oil was up less than 2% on Monday, which suggests markets are confident that the peace deal will hold. Other markets added to this view as stocks were solidly higher and the US dollar was lower by around 0.3%. Previous escalations prompted an opposite response.

President Trump directed the US attacks. In a statement, he made clear the strikes were limited but warned of more if needed. “There may come a point when we are no longer able to be reasonable, and will be forced to militarily complete the job that we very successfully started,” adding that if it came to that, “the Islamic Republic of Iran will no longer exist.”

Vice President JD Vance struck a firm tone too. “Iran signed a ceasefire agreement. We have honored it. If they have disagreements about how the MOU is being applied, they can pick up the phone. But violence will be met with violence,” he posted.

The strikes targeted surveillance, communications, air defense, and drone-related sites rather than broad energy infrastructure. That helped keep oil supply risks in check even as the strait saw temporary disruption. Iran’s response was similarly measured before both sides stepped back. Still, the episode shows how quickly shipping through the key waterway can face pressure, which matters for global energy prices and inflation.

Looking ahead, the focus stays on talks. The ceasefire has held in a shaky way so far, and both Trump and Vance have pointed to progress on bigger issues like Iran’s nuclear program. Any lasting deal that fully reopens the strait and reduces regional risks would likely support lower oil prices, steadier currencies, and more gains for stocks.

Sterling Steady Despite Political Turmoil

Sterling is steady and is 0.3% higher against the US dollar and flat against the euro on Monday. This follows on from a steady week last week despite heightened political volatility.

Starmer announced he would step down as Labour leader and prime minister after less than two years in office, following pressure from within his own party. Greater Manchester Mayor Andy Burnham has emerged as the clear frontrunner to replace him, with a leadership process now under way and a new prime minister expected before parliament returns in September.

The move opens questions about the direction of UK policy under new leadership. Markets have watched the transition closely for any signals on spending, taxes, and the overall fiscal stance. Burnham’s backing from senior figures like Wes Streeting has reduced fears of a long, damaging contest, which helped limit the damage to sterling, which reacted with an initial mild drop but showed resilience in the days that followed.

UK data has not helped the currency’s case. Flash PMI figures for June came in weak, with the composite index falling to 49.4, a 14-month low and below expectations. That pointed to another month of contraction in the economy. Services inflation has picked up while input costs rose, leaving the Bank of England with a tricky outlook as it balances growth risks against price pressures.

Starmer’s departure came after internal party strains, but the relatively orderly path to a Burnham-led government has eased some immediate concerns. A quicker resolution lowers the risk of prolonged instability that could hit confidence and investment. At the same time, the new leadership will need to address the UK’s debt levels and public finances, areas where markets have shown limited patience in the past.