Sterling strengthened against a broadly weaker US Dollar on Tuesday following the appointment of John Healey as Britain's new finance minister. Investors are now looking for fresh guidance on the government's fiscal policy.
The pound Rose 0.15% to $1.3451 after declining over the previous three sessions. It also gained against the Euro, which slipped 0.08% to 84.92 pence.
Healey, who previously served as defence secretary, now faces the challenge of finding additional funding for priorities such as defence, reviving the sluggish economy and cutting welfare spending, while also honouring Prime Minister Andy Burnham's commitment to remain within the government's fiscal rules.
“With Andy Burnham now installed as the new Prime Minister, and the speculation over Chancellor ending with the unexpected appointment of John Healey, the uncertainty facing gilts switches from political to policy,” stated Citi strategist Jamie Searle.
UK borrowing costs climbed on Monday while Sterling weakened as investors grew concerned that Burnham's initial comments after taking office pointed to a more relaxed approach to fiscal policy, Reuters reports.
Furthermore, the Dollar traded close to a one-week high on Tuesday as investors weighed mixed signals from the Middle East.
Escalating tensions fuelled fresh concerns over global energy supplies, while hopes of a potential ceasefire helped temper market anxiety.
Against the Yen, the Dollar was little changed at 162.49, while the Euro held steady at $1.1417.
The US Dollar index, which tracks the greenback against a basket of six major currencies, was little changed at 100.93 after climbing to its highest level since 15th July in the previous session.
Market sentiment continued to be driven by developments in the Middle East. Oil prices briefly surged to almost six-week highs before pulling back as Yemen's Iran-backed Houthi movement announced a naval blockade on Saudi Arabia, fuelling concerns over global energy supplies.
At the same time, hopes for easing tensions remained after Tehran received a 10-day ceasefire proposal from international mediators.
Elsewhere, the New Zealand Dollar climbed 0.4% to $0.5864, reaching its highest level since early June after stronger-than-expected inflation figures reinforced expectations of additional interest rate hikes.
The Australian Dollar also edged higher, rising to $0.7001.
Meanwhile, the Canadian Dollar stabilised after falling to a one-month low following Washington's decision to impose a new 50% tariff on a broad range of Canadian goods, citing what it described as Ottawa's “discriminatory treatment.”