Sterling has weakened today following the latest Bank of England rate decision and rising UK political uncertainty.
As expected, the BoE voted to keep interest rates on hold at 3.75%. However, the vote split was more dovish than expected, with four of the nine policymakers opting for a rate cut versus expectations of two. They also downgraded the growth forecasts for the next two years and warned the economy was now in danger of a sharp jump in unemployment. Together, this has increased the odds of a less gradual downward path of cuts form the BoE which has led to some Sterling weakness.
Earlier today, the Pound had already fallen sharply amid growing pressure on Prime Minister Keir Starmer. He is facing mounting criticism within his own party over his decision to appoint Peter Mandelson as US ambassador, despite his links to Jeffrey Epstein. Markets seem to be bracing for the possibility of a leadership challenge - with some research companies suggesting a roughly two-thirds chance he could step down in 2026 (up from around 51%). Angela Rayner is currently the bookies favourite to win any leadership contest which is seen as a potential risk to Sterling given the likelihood of a shift further to the political left.
In other news, the USD has continued to recover from recent losses. This follows the announcement of Trump's pick for the new Federal Reserve Chair role - Kevin Warsh - who is generally perceived as a more hawkish than the other main contenders. Additionally, the latest Fed meeting was generally more upbeat tone which has reduced expectations for aggressive US rate cuts. Finally, comments from US Treasury Secretary Scott Bessent have helped calm concerns that Trump’s earlier remarks signalled a deliberate policy push towards a weaker USD.
As a result, GBP/USD has fallen by nearly one cent today and is now around three cents lower than last week’s high, trading at a 13-day low. GBP/EUR is down approximately 0.75 cents on the day and around 1% lower from yesterday’s high, trading at an 8-day low.
