The pound suddenly plunged! The UK Prime Minister's governing crisis triggered currency market volatility.
2026-05-12 16:55:37
On Tuesday (May 12), during the Asian and European sessions, the euro rose rapidly against the pound during the meeting, currently up 0.38% and trading around 0.8685. The dollar also rose strongly due to the weakness of the UK.
Recent political turmoil in the UK has intensified, with internal conflicts erupting within the ruling Labour Party and a large number of Labour MPs beginning to oppose Prime Minister Keir Starmer.
Analysts from multiple institutions have stated that Starmer's term as prime minister is unlikely to last beyond this year, and his foundation of governance is already in jeopardy.
The pound is currently experiencing a sharp decline, most likely because a sufficient number of MPs at today's cabinet meeting demanded that Starmer set a timetable for his resignation.
Previously, the market believed that the probability of him facing a party coup before September was low, but as the situation deteriorated rapidly, expectations from all sides continued to reverse.
The immediate trigger for this political turmoil was the Labour Party's crushing defeat in last week's UK local council elections.
The Labour Party lost control of more than 30 local councils in England, with about 1,500 local councilors losing their seats. Voters flocked to the right-wing Reform Party and the left-wing Green Party, fully exposing the strong public dissatisfaction with the current government.
For a long time, the Labour government has been controversial due to its inability to control illegal immigration across the English Channel and its welfare cuts. Coupled with frequent policy swings and weak and hesitant governance decisions, it has not only lost the trust of voters but also severely undermined investor confidence.
In an effort to regain support within his party, Starmer delivered a crucial speech on Monday, taking responsibility for the election defeat and promising to focus on national security, immigration, and deepening cooperation with Europe.
This statement failed to sway core party members, and several ministerial aides subsequently announced their resignations. The Eurasia Group pointed out that Starmer's attempt to quell the party rebellion had completely failed, and even if he remained in office for the short term, his political future remained precarious.
The Labour Party's current governing team is severely divided, with cabinet ministers holding polarized views: some support Starmer's continued rule, while others urge him to step down.
According to institutional forecasts, the probability of Starmer being removed from office this year has been revised up to 80%, with only a 20% chance of him remaining in office.
The three main scenarios are: lawmakers push for a party leader election before September, Starmer voluntarily and gracefully stepping down, and an immediate leadership transition.
Manchester Mayor Andy Burnham, former deputy party leader Angela Reyner, and Health Secretary Wes Streittin are considered potential successors, but none have yet formally launched a challenge.
Economists are generally concerned that the new Labour leader, in an effort to win public support, will likely loosen fiscal constraints and expand the scale of debt and government bond issuance, further exacerbating inflationary pressures in the UK and dragging down economic growth.
The high level of uncertainty in British politics has rapidly impacted capital markets. British government borrowing costs have surged, with yields on 10-year and 30-year government bonds rising to multi-year highs, reflecting market concerns about future fiscal easing.
(Trend chart of UK 10-year government bond yields)
(Overlay trend chart of UK 20-year and 30-year government bond yields)
In the foreign exchange market, this internal Labour Party crisis will directly influence the short-term price movement of the pound. The political turmoil leading to confused policy expectations, coupled with the potential risks of fiscal expansion, continues to weaken the confidence of pound bulls, and the pound will remain under pressure overall.
(Euro/Pound Sterling daily chart, source: FX678)
The outcome of the upcoming cabinet meeting and the pace of the Labour Party's power transition will be key variables affecting the pound's exchange rate. Meanwhile, the strengthening of the US dollar index today was also clearly influenced by the pound.
At 16:53 Beijing time, the euro was trading at 0.8683/84 against the pound.
Recent political turmoil in the UK has intensified, with internal conflicts erupting within the ruling Labour Party and a large number of Labour MPs beginning to oppose Prime Minister Keir Starmer.
Analysts from multiple institutions have stated that Starmer's term as prime minister is unlikely to last beyond this year, and his foundation of governance is already in jeopardy.
The pound is currently experiencing a sharp decline, most likely because a sufficient number of MPs at today's cabinet meeting demanded that Starmer set a timetable for his resignation.
Previously, the market believed that the probability of him facing a party coup before September was low, but as the situation deteriorated rapidly, expectations from all sides continued to reverse.
The crushing defeat in the local elections became the trigger for the crisis.
The immediate trigger for this political turmoil was the Labour Party's crushing defeat in last week's UK local council elections.
The Labour Party lost control of more than 30 local councils in England, with about 1,500 local councilors losing their seats. Voters flocked to the right-wing Reform Party and the left-wing Green Party, fully exposing the strong public dissatisfaction with the current government.
For a long time, the Labour government has been controversial due to its inability to control illegal immigration across the English Channel and its welfare cuts. Coupled with frequent policy swings and weak and hesitant governance decisions, it has not only lost the trust of voters but also severely undermined investor confidence.
In an effort to regain support within his party, Starmer delivered a crucial speech on Monday, taking responsibility for the election defeat and promising to focus on national security, immigration, and deepening cooperation with Europe.
This statement failed to sway core party members, and several ministerial aides subsequently announced their resignations. The Eurasia Group pointed out that Starmer's attempt to quell the party rebellion had completely failed, and even if he remained in office for the short term, his political future remained precarious.
Cabinet divided, party leadership transition countdown begins
The Labour Party's current governing team is severely divided, with cabinet ministers holding polarized views: some support Starmer's continued rule, while others urge him to step down.
According to institutional forecasts, the probability of Starmer being removed from office this year has been revised up to 80%, with only a 20% chance of him remaining in office.
The three main scenarios are: lawmakers push for a party leader election before September, Starmer voluntarily and gracefully stepping down, and an immediate leadership transition.
Manchester Mayor Andy Burnham, former deputy party leader Angela Reyner, and Health Secretary Wes Streittin are considered potential successors, but none have yet formally launched a challenge.
Economists are generally concerned that the new Labour leader, in an effort to win public support, will likely loosen fiscal constraints and expand the scale of debt and government bond issuance, further exacerbating inflationary pressures in the UK and dragging down economic growth.
Political turmoil has impacted financial markets, putting continued pressure on the pound.
The high level of uncertainty in British politics has rapidly impacted capital markets. British government borrowing costs have surged, with yields on 10-year and 30-year government bonds rising to multi-year highs, reflecting market concerns about future fiscal easing.
(Trend chart of UK 10-year government bond yields)
(Overlay trend chart of UK 20-year and 30-year government bond yields)
In the foreign exchange market, this internal Labour Party crisis will directly influence the short-term price movement of the pound. The political turmoil leading to confused policy expectations, coupled with the potential risks of fiscal expansion, continues to weaken the confidence of pound bulls, and the pound will remain under pressure overall.
(Euro/Pound Sterling daily chart, source: FX678)
The outcome of the upcoming cabinet meeting and the pace of the Labour Party's power transition will be key variables affecting the pound's exchange rate. Meanwhile, the strengthening of the US dollar index today was also clearly influenced by the pound.
At 16:53 Beijing time, the euro was trading at 0.8683/84 against the pound.
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