GBPUSD:
Sterling is ending the week in an environment where political uncertainty has once again become a currency-market factor. Following the resignation of Prime Minister Keir Starmer, investors are awaiting the formation of a new government and assessing whether confidence among UK government bond holders can be preserved. For the pound, the change of cabinet matters less than the clarity of fiscal policy, which remains limited for now.
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The Bank of England kept its interest rate unchanged at 3.75% on June 17, although two Monetary Policy Committee members voted for an increase. The central bank noted that inflation had eased to 2.8% and that the labour market was gradually cooling, while energy prices remained volatile. This combination does not give the market confidence that policy will become more restrictive quickly and limits interest-rate support for sterling.
High inflation in the United States and resilient consumer spending continue to support expectations of a more restrictive Federal Reserve policy path, despite lower expectations of a July rate hike. The pound may receive short-term support when the US dollar weakens, but domestic fiscal concerns leave any recovery vulnerable. The baseline scenario allows for further weakness in GBP/USD until the market receives clearer signals on UK politics and the economy.
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