The pound slides after questions over Keir Starmer’s leadership spook money markets
Exchange rate volatility often happens as a result of political turbulence so investors will be keeping a close eye on the UK this week, where Prime Minister Keir Starmer’s premiership is coming under pressure. Odds are shortening on the likelihood of Starmer being ousted after questions were raised over his appointment of Peter Mandelson as ambassador to the US. Mandelson’s links to Jeffrey Epstein came under intense scrutiny this week; how much Starmer knew about that relationship could determine his political fate.
On the money markets, the immediate result saw the pound slip to levels 2.5% below the highs we saw at the end of January, though it rallied a little on Friday. Sterling’s strength was further undermined by a closer-than-expected Bank of England interest rate decision. Policymakers voted to keep the rate on hold at 3.75% but four out of nine members voted for a cut, raising expectations of further easing next time round.
The euro’s progress continues
The euro continues to strengthen, and has now gained nearly 14.5% on the dollar in the last year. The pound also retreated from recent highs against the euro, reflecting growing investor unease at the UK’s political uncertainty. The pound had actually hit a five-month high earlier in the week, but the euro remains up nearly 4.3% against sterling over the last 12 months.
The week ahead:
Investors will certainly be keeping a close eye on the UK political situation, and any hints that the drama engulfing the Prime Minister may become a crisis of leadership. The UK will also release GDP figures this week (Thursday) highlighting the underlying state of the British economy. In the EU, balance of trade and GDP figures (Friday) will be closely watched. In the US, labour market data (Thursday) will be the focus of a busy week.
