British Pound declines to near 1.3200 as UK PM Starmer expected to resign

GBP/USD edges lower to around 1.3210 in Monday’s early Asian session.
UK PM Starmer is expected to resign after a political challenge.
Hawkish signals from the Fed underpin the US Dollar.

Lallalit Srijandorn FXStreet

The GBP/USD pair faces some selling pressure near 1.3210 during the early Asian trading hours on Monday, pressured by UK political uncertainty. The British Pound (GBP) softens against the US Dollar (USD) after the reports that UK Prime Minister Sir Keir Starmer is expected to resign to make way for a new leader.

Bloomberg reported on Sunday that allies of Starmer expect him to set out a timetable for his departure as UK prime minister in the coming days, putting Britain on course for its seventh premier in a decade and paving the way for Andy Burnham to replace him.

US President Donald Trump said in a post on Truth Social on Sunday that Starmer was to resign as prime minister. Meanwhile, UK Business Minister Peter Kyle said the prime minister was reflecting on "the political challenges that he faces in this moment.” The Cable attracts some sellers following UK political headlines.

Hawkish signals from the Federal Reserve (Fed) support the Greenback. Last week, the US central bank decided to hold its benchmark interest rate steady between 3.50% and 3.75% after Kevin Warsh's first meeting in charge of the central bank. Warsh said during the press conference that “price stability” would be the Fed’s guiding principle.

Futures traders have priced in that the Fed is likely to raise rates by 25 basis points (bps) at its September meeting, with some chance seen of a move as soon as next month’s meeting.

Pound Sterling FAQs

What is the Pound Sterling?

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).

How do the decisions of the Bank of England impact on the Pound Sterling?

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.

How does economic data influence the value of the Pound?

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.

How does the Trade Balance impact the Pound?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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