British Pound: Leadership turmoil and weaker carry weigh on Sterling – HSBC

FXStreet Insights Team FXStreet

HSBC argues that the Pound is more exposed to downside risks following Prime Minister Starmer’s resignation and the ensuing UK leadership contest. The bank highlights a less supportive macro backdrop, with UK–US 2-year spreads narrowing to near zero, a Bank of England hold at 3.75% expected through year-end, and deteriorating fiscal optics likely weighing on GBP in coming months.

Politics and macro headwinds for Pound

"In the UK, Prime Minister Starmer’s resignation has shifted market focus to the leadership contest and the policy direction of the next Prime Minister. With limited clarity, the GBP appears more exposed to downside risks than positioned for upside relief. Candidates must declare by 9 July."

"If favourite, Andy Burnham (Polymarket, 22 June) is unchallenged, a swift transition could see him in office by 16 July."

"Beyond politics, the macro backdrop is less supportive. UK-US 2-year rate differentials have narrowed sharply, from c66bp in April to roughly 0bp, reducing the carry support that has helped underpin the GBP. This reflects the Fed’s hawkish shift (17 June) versus a cautious Bank of England (BoE) hold at 3.75%, with our economists expecting the BoE to remain on hold through year-end."

"Fiscal optics have also deteriorated, with government borrowing exceeding the UK Office for Budget Responsibility’s (OBR) forecast for a second consecutive month. All these factors are likely to weigh on GBP in the months ahead."

"UK leadership uncertainty leaves the GBP more exposed to the downside."

(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.

GBP/USD climbs to four-day highs near 1.3250

GBP/USD rapidly reverses Friday’s small losses and challenges the 1.3250 level, or four-day tops, at the beginning of the week. Cable’s upside comes on the back of further loss of momentum in the Greenback, while traders continue to assess the geopolitical front and upcoming key events.

EUR/USD extends the advance past 1.1400

EUR/USD starts the week on a positive note, trading above 1.1400 on Monday as broad-based US Dollar weakness lends support to the pair. In the meantime, investors continue to monitor developments surrounding efforts to end the US-Iran conflict, while attention gradually shifts to the ECB's annual forum and the US NFP data.

Gold falters just ahead of $4,100

Gold remains under modest bearish pressure just above the key $4,000 mark per troy ounce on Monday. The yellow metal struggles to extend its recent gains as renewed effervescence in the Middle East revives inflation concerns and bolsters Fed rate hike expectations.

Bitcoin four-year cycle: BTC risks 75% drawdown with four months of bear market still ahead

Bitcoin price continues to trend downward below the $60,000 support zone after losing over 50% of its value since the $126,199 high in October. Bitcoin’s four-year cycle, measured from cycle tops to bottoms, suggests that four months of a bear market are still ahead.

Just like Fed, is BoJ’s independence under threat?

When talking about central bank independence, most of the focus has been on Donald Trump’s pressure on the Federal Reserve. But a similar story, a quieter one for now, seems to be happening on the other side of the Pacific: Japan’s government may be testing the Bank of Japan’s independence.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.