Pound Slides as UK Turmoil and Weak Data Hit GBP/USD

Key Moments

Political Uncertainty Weighs on Sterling

The GBP/USD pair trades around 1.3195 during early European hours on Wednesday as the British Pound continues to lose ground against the US Dollar. The latest leg lower comes amid heightened political uncertainty in the United Kingdom following the resignation of Prime Minister Keir Starmer.

Starmer stepped down on Monday under heavy pressure after Andy Burnham secured victory in the Makerfield by-election last week. With his departure, the Labour Party must now choose a new leader to head the government.

Commentary from analysts highlights the potential market focus on the incoming leadership’s stance on fiscal policy. “Markets will be focused on Burnham’s views on fiscal policy and whether there will be any relaxation of the current fiscal rules,” said Commonwealth Bank of Australia strategists, including Kristina Clifton. “A loosening in fiscal rules would likely be poorly received by the UK bond market,” and weigh on the pound, they said.

Soft UK PMI Data Adds to Downside Pressure

Beyond politics, weaker UK macroeconomic data is also dragging on the Pound. The latest UK Purchasing Managers’ Index (PMI) readings contributed to the downside in GBP/USD, commonly known as Cable.

UK private sector activity contracted for a second consecutive month in June. The flash Composite PMI declined to 49.4 from 49.7 in May, marking a 14-month low and remaining below the 50 threshold that signals expansion. The sub-50 reading indicated that activity among goods producers is generally falling.

Meanwhile, Manufacturing PMI slipped to a three-month low of 53.1 in June from 53.9 in the prior reading.

Fed Expectations Support the Dollar

On the US side, shifting interest rate expectations are reinforcing US Dollar strength. Market participants continue to reassess the outlook for Federal Reserve policy after recent hawkish signals.

According to pricing based on the CME FedWatch tool, traders are now assigning nearly an 86.1% probability to a Fed rate hike in December, an increase from 61% prior to last week’s FOMC meeting.

“The dollar’s strength right now, at the end of the day, it’s still hawkishness, if you look at Fed expectations with Fed funds futures right now, they are some of the highest odds that we’ve seen in a while,” said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.

Market participants are also awaiting the US May Personal Consumption Expenditures (PCE) Price Index, due on Thursday, which could further shape expectations for the Fed’s policy path.