Sterling took support today on the news that former finance minister Rishi Sunak is set to become British prime minister after other candidates quit the race to lead the Conservative Party.

The pound was an outlier among major currencies as most others weakened against the US dollar.

It rose as far as $1.1402 in earlier trading, after Sunak's rival Boris Johnson withdrew from the race before the currency pared gains to trade down 0.2% at at $1.1290.

Sterling's moves against the euro were sharper with the common currency falling 0.25% to 87.1 pence.

Sunak, one of the wealthiest politicians in Westminster, will be asked to form a government by King Charles, replacing Liz Truss, the outgoing leader who only lasted six weeks in the job.

"It seems that the announcement was pretty well priced in by this point - especially after sterling's notable gains at the Asia open last night," said Michael Brown, head of Marketintelligence at Caxton.

"Having said that, Sunak taking over as PM should restore a significant amount of credibility around UK policy, which is likely to limit downside for sterling assets in the near term," he added.

Former prime minister Boris Johnson had raced home from a holiday to see if he could enter the ballot. However, he said yesterday that while he had secured sufficient support to proceed to a vote by Conservative Party members, he realised that he could not govern effectively "unless you have a united party in parliament".

The medium term outlook for the pound looks troubled however.

"We maybe have a bit less chaos with Boris Johnson not running but it's not like Rishi Sunak has a strong programme presenting greater horizons ahead for the UK economy when the backdrop is still the backdrop," said John Hardy head of FX strategy at Saxo Bank.

Hardy said he did not see a return of the "chaos" that sent the pound to a record low of $1.0327 on September 26 and caused a spike in euro/ sterling as the Bank of England and the government would send the right signals.

"But I just don't see a strong steady improvement," he added.

The pound tumbled and gilt yields soared as a fiscal plan containing a raft of unfunded tax cuts unveiled by then finance minister Kwasi Kwarteng spooked markets.

The so-called 'mini budget' also ultimately led to the removal of Truss as Prime Minister.