The pound was little changed on Wednesday as investors weighed renewed tensions between the United States and Iran alongside growing uncertainty over Britain's political future.
US President Donald Trump said efforts to reach an interim agreement to end the conflict with Iran were "over" after Tehran launched fresh attacks on US military bases in the Gulf.
Oil prices rose sharply following the comments, with Brent crude climbing 5.6% to $78.36 a barrel, reflecting concerns that the latest developments could disrupt energy supplies.
Despite the escalation, currency markets remained relatively calm. The US dollar index was broadly unchanged, while sterling traded at $1.3351 after reaching its strongest level against the dollar since 17 June during Tuesday's session.
The pound slipped slightly against the euro to 85.47 pence but remained close to its highest level in more than a year.
Attention also remained focused on domestic politics, with former Greater Manchester mayor Andy Burnham widely expected to replace Keir Starmer as prime minister later this month.
Analysts say uncertainty over the composition of the next government is limiting market reaction.
"We still don't know an awful lot about the policies of Burnham, assuming that he is the next Prime Minister," said Jane Foley, head of foreign exchange strategy at Rabobank.
"We certainly don't know who his cabinet picks are going to be," she added.
Investors are particularly watching who will become the next chancellor, amid concerns about the UK's strained public finances and the direction of future fiscal policy.
Prediction market Polymarket was placing a 51% probability on former energy minister Ed Miliband becoming finance minister.
According to Ms Foley, that appointment could prove significant for the currency.
"Who is going to be Chancellor is going to give signals to the market as to whether or not we are going to see a chancellor that will try and tighten those purse strings or not," she said.
"I think that could really set the tone for sterling through the summer and into the autumn."
