(Adds slug) Sterling faces a mixed outlook in the near term as geopolitical optimism clashes with looming domestic political risks and a shifting monetary policy landscape. The pound nudged higher, rising to 1.3460 in Asia session trading, the high end of its recent range, propelled by a sharp improvement in broader market sentiment following the announced, but not yet signed, U.S.-Iran peace deal.

News of the agreement ignited a broad risk-on move. Oil prices fell nearly 5% after President Donald Trump said the Strait of Hormuz will reopen on Friday and that he has ordered an end to the U.S. blockade of Iranian ports.

The repricing compressed global yields, with UK gilt yields tracking U.S. Treasury yields lower, easing fiscal concerns in UK asset markets and lending the pound modest support.

However, domestic political risks, particularly challenges to Prime Minister Keir Starmer's leadership, are a major concern due to worries that it may result in a more free-spending government. Investors still remember the market turbulence caused by former PM Liz Truss's loose fiscal plans, which caused a sharp rise in gilt yields and a substantial GBP/USD selloff. With the Israel-Hezbollah component of the deal still fluid and the UK political landscape opaque, downside risks predominate despite Sunday's peace announcement — a view underscored by the limited rally in currency risk markets since Trump's statement.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)