Pound Slides as UK Turmoil and Hawkish Fed Outlook Hits

Written by Sandra Leggero

Sandra Leggero has a background in financial markets, having spent more than 9 years in commodities trading for several European and Asian companies. She holds a degree in Economics from the University of Pavia and specializes in emerging markets.

, | Updated: June 23, 2026

Key Moments

GBP/USD trades near 1.3245 in early Tuesday Asian dealings, extending recent weakness.
UK Prime Minister Keir Starmer resigned on Monday, intensifying political uncertainty and pressuring the Pound.
Markets see nearly an 89% probability of a Fed rate hike in December after a hawkish tone from new Fed Chair Kevin Warsh.

GBP Under Pressure as Political Risk Rises

The GBP/USD pair is trading on the back foot around 1.3245 in early Asian hours on Tuesday, with the British Pound softening against the US Dollar. Ongoing political uncertainty in the United Kingdom continues to weigh on the currency pair.

The UK has entered a fresh phase of political turmoil after Prime Minister Keir Starmer resigned on Monday. His departure followed intense pressure sparked by Andy Burnham’s victory in the Makerfield by-election last week. With Starmer stepping down, the Labour Party now faces the task of choosing a new leader to head the government.

Commenting on the political shift, strategists at Commonwealth Bank of Australia, including Kristina Clifton, said, “Markets will be focused on Burnham’s views on fiscal policy and whether there will be any relaxation of the current fiscal rules. A loosening in fiscal rules would likely be poorly received by the UK bond market,” and weigh on the pound, they said.

Fed Stance Supports Dollar Strength

On the US side, monetary policy expectations are lending support to the Greenback and creating headwinds for GBP/USD. The Federal Reserve kept interest rates unchanged at its latest meeting but signaled that a further increase remains possible.

Markets anticipate the US rate hike later this year after new US Federal Reserve (Fed) Chair Kevin Warsh adopted a hawkish tone on inflation during his first policy meeting. This positioning is seen as a potential backing for the US Dollar against major peers.

According to the CME FedWatch tool, market participants have priced in nearly an 89% chance of a Fed rate hike in December, compared with 61% before last week’s FOMC meeting.

Upcoming Data: PMI Readings in Focus

Traders are also watching the preliminary S&P Global Purchasing Managers Index (PMI) figures for both the US and the UK, which are scheduled for release later on Tuesday. These data points could influence expectations around economic momentum and monetary policy in both economies, potentially adding further volatility to GBP/USD.

Key Market Metrics

Asset / Indicator	Latest Detail
GBP/USD	Trades near 1.3245 in early Asian session on Tuesday
UK Political Developments	Prime Minister Keir Starmer resigned on Monday after pressure following the Makerfield by-election
US Fed Policy	Rates held steady; door left open for a hike
Fed Chair	Kevin Warsh adopts hawkish tone on inflation at his first policy meeting
Market-implied probability of December Fed hike	Nearly 89%, up from 61% before last week’s FOMC meeting

Pound Sterling: Background and Key Drivers

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

Role of the Bank of England

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.

When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.

When inflation falls too low, it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Economic Data and Trade Balance Effects

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.

A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.

If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.