Sterling's former club Liverpool, as well as Barcelona and Arsenal, were all linked with the star.
But Sterling has scored in three of City's last four games, including the vital equaliser in Wednesday's Champions League victory over Paris Saint-Germain.
Guardiola responded to the forward's renaissance by insisting it was only the first step as he looks to recapture the form that made him so feared in City's 2018-19 title-winning campaign.
"I'm so glad for him, he's helped us for sure. He will fight to be better and better," Guardiola told reporters on Friday.
"It is important for strikers and wingers to score and make assists. He was decisive in what we've done in recent years.
"Scoring goals can give confidence for these type of guys but he has to do better, be aggressive, go one against one, arrive in the final third. This is the first step for him to come back."
City midfielder Kevin De Bruyne remains unavailable for Sunday's Premier League clash against West Ham at the Etihad Stadium following his positive test for coronavirus last week.
De Bruyne, who has been vaccinated, remains in isolation and Guardiola revealed the Belgian has experienced symptoms.
"He's still tired, no taste -- the symptoms of Covid. Now he's done seven or eight days' isolation," Guardiola said.
"A few more days and we will give him a PCR test and if it's negative then he will be back."