The pound strengthened to its highest level against the euro in 10 months on Wednesday as investors assessed the political outlook in Britain and speculated over who could become
chancellor if Andy Burnham succeeds Keir Starmer as prime minister.
Sterling pushed the euro down to 86.03 pence overnight, the single currency's weakest level since August 2025. By late trading, the euro remained 0.1% lower against the pound.
The British currency has also shown resilience against the U.S. dollar in recent weeks, despite pressure from expectations that the Federal Reserve may continue tightening monetary policy in response to persistent inflation and robust economic growth in the United States.
Sterling was last trading 0.1% lower against the dollar at $1.319, while the euro declined 0.2% versus the greenback.
Political developments in Westminster remained a key focus for currency markets. Burnham appeared increasingly likely to secure the Labour leadership after minister Darren Jones ruled out a leadership bid and publicly endorsed the former Manchester mayor.
Attention has now shifted to who might oversee Britain's finances under a Burnham administration. Media reports suggest current Finance Minister Rachel Reeves is unlikely to remain in the role if Burnham takes office, with former Health Secretary Wes Streeting emerging as a leading contender.
"The obstacles to a Burnham coronation are slowly being cleared, offering sterling support at the margin," said Nick Rees, Head of Macro Analysis at Monex Europe.
Rees added that reports naming Streeting as a potential successor to Reeves were also helping underpin confidence in the pound.
"That said, we are still in the honeymoon period as far as Burnham is concerned, and economic realities remain challenging," he said.
Analysts at JPMorgan said earlier this week that a swift resolution to political uncertainty could allow investors to refocus on factors that have supported sterling, including the relative strength of the UK economy.
Despite its gains against the euro, the pound has fallen around 2% against the dollar this month as traders increased bets on further Federal Reserve rate hikes.
Markets were last pricing in approximately 38 basis points of additional Fed tightening this year, compared with around 24 basis points expected from the Bank of England, enhancing the dollar's appeal relative to sterling.
