The pound sterling held steady against the dollar on Wednesday, consolidating recent gains as investor sentiment improved amid signs that the fragile ceasefire between Israel and Iran was holding. Sterling was last flat at $1.361, its highest level since early 2022, after rising 1.3 per cent against the dollar so far this week — its strongest three-day performance since late April. Against the euro, the pound also held firm, trading at 85.29 pence, close to this week's two-month highs. Analysts attributed the currency's stability to increased risk appetite, even as concerns mount over domestic politics and the economic outlook. Surveys pointed to a continued slowdown in Britain's labour market, with falling job vacancies and below-inflation pay growth, particularly among graduate-level roles. Bank of England Governor Andrew Bailey reiterated on Tuesday that rate cuts are likely, noting signs of softening in the labour market. Markets now price in an 80 per cent chance of a rate cut in August. However, BoE policymaker Megan Greene cautioned that inflation may remain elevated, suggesting the central bank should proceed carefully on reducing borrowing costs. Political uncertainty also clouded the outlook for sterling. Analysts at Monex warned of "growing downside risks" as Labour lawmakers challenge Prime Minister Keir Starmer's proposed welfare reforms ahead of a key vote next week. The reforms aim to rein in entitlement spending, but internal rebellion could force the government into higher taxes or additional borrowing — a scenario Monex described as "not a sterling-positive dynamic". BoE Deputy Governor Clare Lombardelli is scheduled to speak later Wednesday, with markets watching closely for any policy signals. Attribution: Reuters Subediting: M. S. Salama
