Political turmoil in the UK is weighing on the pound, which is expected to remain volatile in the short term, awaiting stabilization.
2026-06-25 14:49:28
The British pound (GBP/USD) staged a technical rebound against the US dollar during Thursday's Asian trading session, rising to around 1.3175 . However, given the rising uncertainty in the UK political situation and the overall strength of the US dollar, the pound's upside potential remained limited.
British politics has recently undergone another major shift. Prime Minister Keir Starmer announced his resignation on Monday, sparking concerns about the future direction of British policy. This resignation comes after the Labour Party's defeat in the Mekfield by-election, with rapidly escalating political pressure ultimately leading to Starmer's departure.
As the UK enters a new leadership transition phase, markets are closely watching the direction of future fiscal policy. Investors are assessing the economic policies that Andy Burnham might adopt and their impact on the UK's fiscal situation. Some market participants believe that if the government adopts more aggressive fiscal expansion measures in the future, while raising taxes and increasing the scale of government bond issuance, it may increase the UK's fiscal pressure and pose a challenge to the attractiveness of sterling assets. Political uncertainty often weakens international capital's willingness to allocate to domestic assets, and the UK economy itself is currently facing problems such as slowing growth, weak consumption, and fiscal balance pressures; therefore, market risk appetite for the pound has declined.
Meanwhile, US factors continue to dominate the foreign exchange market. With recent US economic data showing overall stability, coupled with the Federal Reserve's continued hawkish signals, market bets on future interest rate hikes have clearly intensified. According to the CME FedWatch tool, the market now expects a 25 basis point rate hike by the Fed in July to rise to 34.2% , a significant increase from 8.5% a week ago; the probability of a rate hike in September has risen to 66.4% , compared to only 29.1% previously. This change has pushed the US dollar index to remain high and put pressure on non-US currencies, including the British pound.
Investors are currently focused on the upcoming US May Personal Consumption Expenditures Price Index (PCE) report. As a key indicator for the Federal Reserve's inflation measurement, the PCE data will directly influence market expectations regarding the future path of interest rates. The market anticipates that the US May PCE annual rate will rise to 4.1% from the previous reading of 3.8% , while the core PCE annual rate is expected to rise to 3.4% from 3.3% . If inflation data continues to exceed market expectations, the likelihood of further interest rate hikes by the Federal Reserve will increase, thereby strengthening the US dollar and putting new downward pressure on the British pound.
However, if PCE data shows a significant cooling in US inflation, market expectations for interest rate hikes may be revised, and the dollar's rise may slow down temporarily, thus providing the pound with some opportunity for a rebound. From a market sentiment perspective, the pound is currently facing dual pressures from both inside and outside the market. On the one hand, political changes in the UK are increasing uncertainty; on the other hand, hawkish expectations from the Federal Reserve continue to strengthen the dollar's advantage. Until new positive factors emerge, the pound's overall performance may remain relatively weaker than the dollar.
From a daily chart perspective, GBP/USD remains in a downtrend. After recently breaking below the previous consolidation platform, the exchange rate has continued to decline. Although it has rebounded to around 1.3175 , the overall bearish pattern remains unchanged. The price continues to trade below the major moving average system, indicating that bears still hold the upper hand. Key support levels to watch are 1.3100 and the psychological level of 1.3000 . A break below 1.3000 could lead to further declines towards the 1.2900 area. Resistance levels to watch are first at 1.3250, then 1.3350 and the 1.3450 area. Until a firm foothold above 1.3350 is established, the medium-term trend remains bearish and consolidating.
From a 4-hour chart perspective, GBP/USD is in a technical correction phase after a decline, with the short-term rebound mainly driven by short covering. The current price is testing the resistance area around 1.3200. A decisive break above 1.3250 could lead to a further rebound towards the 1.3350 area. However, given the overall strength of the US dollar and the unresolved political risks in the UK, significant selling pressure is expected during the rebound. If the exchange rate breaks below the 1.3100 support level again, the downtrend may strengthen again, pushing the price further down to the 1.3000 level. Overall, the short-term trend leans towards consolidation and correction, but the medium-term direction remains bearish.
Editor's Summary : The evolving political situation in the UK is increasing uncertainty for the pound, while rising expectations of a Fed rate hike continue to strengthen the dollar's advantage. Both factors combined are contributing to the overall weakness of the GBP/USD exchange rate. In the short term, US PCE inflation data will be the core focus of the market. If inflation continues to rise, hawkish expectations from the Fed may strengthen further, thus pushing the dollar higher; conversely, if inflation shows signs of slowing, it could provide the pound with a temporary respite. Investors should pay close attention to the subsequent developments in the UK political situation and the performance of US inflation data, as these will determine the next direction of the pound/dollar exchange rate.
British politics has recently undergone another major shift. Prime Minister Keir Starmer announced his resignation on Monday, sparking concerns about the future direction of British policy. This resignation comes after the Labour Party's defeat in the Mekfield by-election, with rapidly escalating political pressure ultimately leading to Starmer's departure.
As the UK enters a new leadership transition phase, markets are closely watching the direction of future fiscal policy. Investors are assessing the economic policies that Andy Burnham might adopt and their impact on the UK's fiscal situation. Some market participants believe that if the government adopts more aggressive fiscal expansion measures in the future, while raising taxes and increasing the scale of government bond issuance, it may increase the UK's fiscal pressure and pose a challenge to the attractiveness of sterling assets. Political uncertainty often weakens international capital's willingness to allocate to domestic assets, and the UK economy itself is currently facing problems such as slowing growth, weak consumption, and fiscal balance pressures; therefore, market risk appetite for the pound has declined.
Meanwhile, US factors continue to dominate the foreign exchange market. With recent US economic data showing overall stability, coupled with the Federal Reserve's continued hawkish signals, market bets on future interest rate hikes have clearly intensified. According to the CME FedWatch tool, the market now expects a 25 basis point rate hike by the Fed in July to rise to 34.2% , a significant increase from 8.5% a week ago; the probability of a rate hike in September has risen to 66.4% , compared to only 29.1% previously. This change has pushed the US dollar index to remain high and put pressure on non-US currencies, including the British pound.
Investors are currently focused on the upcoming US May Personal Consumption Expenditures Price Index (PCE) report. As a key indicator for the Federal Reserve's inflation measurement, the PCE data will directly influence market expectations regarding the future path of interest rates. The market anticipates that the US May PCE annual rate will rise to 4.1% from the previous reading of 3.8% , while the core PCE annual rate is expected to rise to 3.4% from 3.3% . If inflation data continues to exceed market expectations, the likelihood of further interest rate hikes by the Federal Reserve will increase, thereby strengthening the US dollar and putting new downward pressure on the British pound.
However, if PCE data shows a significant cooling in US inflation, market expectations for interest rate hikes may be revised, and the dollar's rise may slow down temporarily, thus providing the pound with some opportunity for a rebound. From a market sentiment perspective, the pound is currently facing dual pressures from both inside and outside the market. On the one hand, political changes in the UK are increasing uncertainty; on the other hand, hawkish expectations from the Federal Reserve continue to strengthen the dollar's advantage. Until new positive factors emerge, the pound's overall performance may remain relatively weaker than the dollar.
From a daily chart perspective, GBP/USD remains in a downtrend. After recently breaking below the previous consolidation platform, the exchange rate has continued to decline. Although it has rebounded to around 1.3175 , the overall bearish pattern remains unchanged. The price continues to trade below the major moving average system, indicating that bears still hold the upper hand. Key support levels to watch are 1.3100 and the psychological level of 1.3000 . A break below 1.3000 could lead to further declines towards the 1.2900 area. Resistance levels to watch are first at 1.3250, then 1.3350 and the 1.3450 area. Until a firm foothold above 1.3350 is established, the medium-term trend remains bearish and consolidating.
From a 4-hour chart perspective, GBP/USD is in a technical correction phase after a decline, with the short-term rebound mainly driven by short covering. The current price is testing the resistance area around 1.3200. A decisive break above 1.3250 could lead to a further rebound towards the 1.3350 area. However, given the overall strength of the US dollar and the unresolved political risks in the UK, significant selling pressure is expected during the rebound. If the exchange rate breaks below the 1.3100 support level again, the downtrend may strengthen again, pushing the price further down to the 1.3000 level. Overall, the short-term trend leans towards consolidation and correction, but the medium-term direction remains bearish.
Editor's Summary : The evolving political situation in the UK is increasing uncertainty for the pound, while rising expectations of a Fed rate hike continue to strengthen the dollar's advantage. Both factors combined are contributing to the overall weakness of the GBP/USD exchange rate. In the short term, US PCE inflation data will be the core focus of the market. If inflation continues to rise, hawkish expectations from the Fed may strengthen further, thus pushing the dollar higher; conversely, if inflation shows signs of slowing, it could provide the pound with a temporary respite. Investors should pay close attention to the subsequent developments in the UK political situation and the performance of US inflation data, as these will determine the next direction of the pound/dollar exchange rate.
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