Pound edges higher as markets assess UK finance minister outlook

The pound rose to a 10-month high against the euro on Wednesday as investors assessed the political outlook in the UK and the possible shape of a future government under Andy Burnham, who is widely seen as the likely successor to Prime Minister Keir Starmer.

Sterling strengthened after markets turned their attention to who could become finance minister if Burnham takes over as prime minister.

The euro fell to 86.03 pence overnight, its lowest level since August 2025, before trading 0.1% lower against the pound later in the session.

The move marked a notable gain for sterling against the single currency, even as the pound remained under pressure against the US dollar.

Political outlook in focus

The latest move in sterling came as Burnham appeared to be on course for the Labour leadership without a major challenge.

The political picture became clearer after minister Darren Jones said on Wednesday that he would not enter the Labour leadership race and instead backed the former Manchester mayor.

That development added to market expectations that Burnham could have a clear path to becoming the UK’s next prime minister.

If that happens, investors are also watching for changes at the Treasury.

Current finance minister Rachel Reeves is likely to leave her role if Burnham becomes prime minister, according to media reports published on Tuesday and Wednesday.

Sterling gains against the euro, but not the dollar

While the pound advanced against the euro, its performance against the dollar was weaker.

Sterling was last down 0.1% against the dollar at $1.319.

The pound has broadly performed better against the dollar this month than the euro has, but it has still fallen about 2% against the US currency over the period.

The decline has come as traders increased their expectations for further rate hikes from the Federal Reserve, driven by persistent inflation pressures in the US and continued strength in the American economy.

As a result, the dollar has remained well supported.

Traders were last pricing in around 38 basis points of Federal Reserve rate increases this year, compared with 24 basis points for the Bank of England.

The wider expected rate gap has improved the relative appeal of the dollar and weighed on sterling.

Political clarity is seen as a support factor

Strategists at JPMorgan said earlier this week that the reduction in political uncertainty in the UK could help lift sterling-positive themes, particularly if Burnham becomes prime minister without a leadership contest.

According to the bank’s strategists, a smoother transition at the top of government would allow investors to focus more on the UK’s economic fundamentals, including signs of resilient growth, rather than political instability.

For now, that shift in focus appears to be benefiting the pound against the euro.

However, sterling’s weakness against the dollar underlines that domestic political developments are only one part of the picture.

With markets also driven by diverging central bank expectations, the pound’s next move may depend not only on who leads the UK government and the Treasury, but also on whether the Bank of England can keep pace with the Federal Reserve in the months ahead.