British Pound: Leadership change seen contained – DBS

FXStreet Insights Team FXStreet

DBS Group Research economist Philip Wee argues that Sir Keir Starmer’s resignation and the upcoming Labour Party leadership contest should not trigger a repeat of the 2022 UK mini-budget crisis for the British Pound. The report stresses key differences in fiscal approach versus Liz Truss’s unfunded tax cuts and suggests GBP/USD can remain within an established trading range.

Labour leadership risks for Pound seen limited

"Sir Keir Starmer announced his resignation as British Prime Minister and leader of the Labour Party on June 22."

"If front-runner Andy Burnham becomes prime minister, he would steer the Labour Party from Starmer’s political centre towards left-leaning fiscal spending increases. However, don't expect this year's Labour Party leadership contest to mirror the mini-budget crisis that followed the Conservative Party's contest in 2022."

"Unlike the 2022 strategy under former Prime Minister Liz Truss, which triggered a severe Gilt market panic by introducing completely unfunded tax cuts financed through a massive surge in public borrowing, the 2026 Labour framework operates on a strict, pound-for-pound revenue-matching model."

"By prioritizing targeted tax adjustments to fund structural cost reductions, such as transport nationalization, over-aggressive demand-side stimulus, the current transition is designed to work alongside the markets and independent regulators, effectively neutralizing the risk of a sudden, volatile institutional shock."

"Hence, GBP/USD may yet hold that 1.30-1.39 range set after US President Trump’s Liberation Day tariffs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD struggles near 0.7100 ahead of RBA Bullock's speech

AUD/USD stays defensive near 0.7100 in the Asian session on Tuesday, shrugging off hawkish comments from RBA Assistant Governor Sarah Hunter as traders keenly await a speech from RBA Governor Michele Bullock. Meanwhile, escalating tensions in the Middle East and the Fed's hawkish outlook remain supportive of the bullish US Dollar undertone, weighing on the pair. The crucial Trump-Xi summit is later this week and remains in focus.

USD/JPY holds small gains near 157.50 as JPY intervention risks loom

USD/JPY posts modest gains while trading near 157.50 in the Asian session on Tuesday as intervention fears help limit losses for the Japanese Yen. However, the BoJ's dovish rate hike to a 31-year high keeps JPY bulls on the back foot. Meanwhile, the US Dollar retains a bullish undertone amid the Fed's hawkish outlook and escalating Middle East tensions, providing tailwinds for the pair.

Gold benefits from falling US bond yields; remains below $4,400 amid bullish USD

Gold regains positive traction during the Asian session on Tuesday, though it lacks bullish conviction and remains below $4,400. Falling oil prices ease inflation fears, dragging US bond yields lower and supporting the non-yielding yellow metal. Meanwhile, the Fed's hawkish stance, along with escalating Middle East tensions, keeps the US Dollar near its highest level since late July and acts as a headwind for the bullion.

Ethereum rallies above $2,700 as investors shrug off bearish sentiment

Ethereum (ETH) climbed above $2,700 on Monday after investors defended the realized price level despite negative sentiment over the Clarity Act's failure and the Federal Reserve rate hike. After the Clarity Act failed to advance in the Senate, ETH dipped below $2,400 last week. But right below that price is the top altcoin's realized price, or average on-chain cost basis, at $2,310.

Iranian President will head to New York for UN meeting

President Masoud Pezeshkian will lead an Iranian delegation at the United Nations General Assembly in New York on Tuesday, amid renewed hopes for a diplomatic solution to the Middle East conflict, CNBC reported on Monday. A high-ranking Iranian delegation, including Foreign Minister Abbas Araghchi, will accompany President Pezeshkian.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.