Pound's Recent Strength May Be Short-Lived Amid Government Instability

The British pound has been an unexpected star in the G10 currencies this year, but its recent weakness could deepen.

Despite another change of government and geopolitical shocks, sterling has gained against several peers, including a 1.6% increase against the euro, 2.8% against the Swiss franc, and 4.9% against the Swedish krona.

However, it is near-flat against the US dollar over the same period and down 1.3% against the Japanese yen.

The resignation of Prime Minister Keir Starmer on July 20 has left Britain facing its seventh leader in 10 years, but markets are watching whether a new government will bring stability to the currency.