British Pound declines to near 1.3350 amid UK political uncertainty
- GBP/USD attracts some sellers to around 1.3365 in Friday’s Asian session.
- The UK political crisis weighs on the British Pound.
- Hot inflation data has caused traders to price out interest rate cuts in 2026.
The GBP/USD pair faces some selling pressure near 1.3365 during the Asian trading hours on Friday. The British Pound (GBP) weakens against the US Dollar (USD) amid political uncertainty in the United Kingdom (UK) and risk-off sentiment.
UK health secretary Wes Streeting resigned, saying that he has “lost confidence” in Prime Minister Keir Starmer’s leadership and that it would be “dishonourable and unprincipled” to remain in his government. Starmer has been facing a revolt in his Labour Party since it suffered a drubbing in local elections in England and parliament in Scotland and Wales last week.
The political instability in the UK completely overshadowed a stronger-than-expected Gross Domestic Product (GDP) report for the first quarter (Q1), which weighed on the Cable.
Hotter-than-expected US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data released this week have reinforced markets to reprice the Federal Reserve’s (Fed) interest rate path. This implies that rates will stay higher for longer.
Kansas City Fed President Jeffrey Schmid said on Thursday that inflation is the biggest risk to a US economy that has shown "remarkable resilience" in the face of numerous challenges, and the job market is stable.
Meanwhile, New York Fed President John Williams stated that he does not see a need right now for the central bank to weigh any change in interest rate policy amid the uncertainty created by the Middle East war.
Pound Sterling FAQs
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).
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.
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.
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