When the Labour Party came to power, confidence in the pound sterling solidified. However, in 2026, the party’s ratings are falling, and the market is abuzz with rumors of Keir Starmer’s resignation. As a result, the GBP/USD pair is experiencing elevated volatility. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of England may lower the repo rate in March.
- Keir Starmer’s seat is shaking.
- The pound has come under double pressure from political developments and the BoE.
- Short trades can be opened if the GBP/USD pair declines below support levels of 1.363 and 1.36.
Weekly Fundamental Forecast for Pound Sterling
Investors are no longer concerned about whether the Bank of England will cut rates if inflation continues to accelerate. When exactly will it do so? That’s the puzzle that markets are struggling with. The same applies to the pound. Will it be able to rise if the right conditions come together? Or when is the right time to sell the pound, now or a little later? According to Citigroup, it is worth waiting until the second quarter, when the GBP/USD pair will come under double pressure.
The pound is influenced by both expectations of the Bank of England’s continued monetary expansion cycle and political factors. In May, local elections will be held in Britain, and there is a high probability that the Labour Party will lose them. That is, of course, unless Keir Starmer leaves his post.
Rumors of the prime minister’s resignation have been circulating in the market for a long time. However, the story of Peter Mandelson, who has close ties to Jeffrey Epstein, being appointed ambassador to the US was another blow to the head of government’s reputation. Scottish Labour leader Anas Sarwar has openly expressed his distrust of Starmer. If Keir Starmer is replaced by someone who supports aggressive fiscal stimulus, the GBP/USD pair may drop sharply.
UK Yield Curve
Source: Bloomberg.
The UK will need more loans, and the debt market is responding with an increase in long-term bond yields. Conversely, expectations of an imminent easing of the BoE’s monetary policy are leading to a fall in short-term interest rates. The yield curve is rising, putting pressure on the pound.
For a long time, the pound had a safety cushion in the form of high interest rates, but the Bank of England’s February meeting essentially took that away. Markets expected only two of the nine MPC members to vote for a rate cut. In fact, there were four. Coupled with Andrew Bailey’s statement that the probability of continuing the cycle in March is fifty-fifty, this nearly sank the GBP/USD pair. The risks of a reversal have decreased even further. If it weren’t for weak US labor market data from alternative sources and retail sales, it could have gone downhill completely.
GBP/USD Risk Reversals
Source: Bloomberg.
Strong US employment data from the BLS forced GBP/USD bulls to retreat. If the Fed keeps rates unchanged until June and the Bank of England cuts them at its next meeting, there is clearly no point in waiting until the second quarter to sell the UK currency. Those who missed the boat are unlikely to catch up.
Weekly Trading Plan for GBP/USD and EUR/GBP
While investors digest data on the US labor market, the pound is still holding steady. However, a drop in GBP/USD quotes below support levels of 1.363 and 1.36 could accelerate the decline and become a reason to sell the pound. Buying the EUR/GBP pair on a breakout of the resistance of 0.872 can also be a profitable strategy. According to ING, this pair can grow to 0.9, the strongest level since the time when Liz Truss was Prime Minister.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
