Sterling strengthened modestly on Monday as Andy Burnham prepared to become the UK's next prime minister, with investors closely watching his first appointments and economic priorities.
The pound rose 0.13% against the US dollar to $1.3475, while also gaining against the euro, which slipped 0.11% to 84.91 pence.
In the bond market, the yield on 10-year UK government bonds climbed 1.9 basis points to 4.97%, while two-year gilt yields remained broadly unchanged at 4.38%.
Burnham is due to succeed Sir Keir Starmer after the outgoing prime minister delivers a farewell speech outside 10 Downing Street before formally tendering his resignation to King Charles III. Burnham, the former mayor of Greater Manchester, will then travel to Buckingham Palace, where the King is expected to invite him to form a government.
Financial markets are focused on how the new prime minister will address a slowing economy and mounting pressure on the UK's public finances.
Particular attention has centred on Burnham's choice of chancellor. Reports last week suggesting he would appoint Shabana Mahmood, who is regarded by many investors as fiscally moderate, helped reassure markets after concerns that a more left-leaning appointment could signal significantly higher public spending.
Andrew Wishart, senior UK economist at Berenberg, said investors had already priced in a relatively optimistic outlook for the British economy.
"I think there's actually quite a lot of good news priced into UK asset prices at the moment," he said.
"It's all suggesting that there's belief among investors that the Bank of England is going to hit its inflation target and the government is going to make the public finances sustainable. The big question with Andy Burnham coming in is whether those assumptions remain true."
Mr Wishart said maintaining confidence would depend on whether the new government continued to follow existing fiscal rules.
"If there are questions of fiscal credibility coming back onto the agenda, then there is scope for UK assets to take a hit," he said. "Markets will be watching his announcements closely."
Sterling ended last week with its third consecutive weekly gain against the dollar and its fourth straight weekly rise against the euro.
Investors will also be monitoring a series of key economic indicators due later this week, including UK labour market data, inflation figures and retail sales, which are expected to provide further clues about the health of the economy and the outlook for interest rates.
