Pound extends decline as Starmer pressure mounts
GBP/USD was down 0.71% at 1.3514, while EUR/USD dropped 0.37% to 1.1738
Pound extended its decline on Tuesday as mounting political pressure on Prime Minister Keir Starmer deepened the currency’s negative premium.
As of 12:32 GMT, GBP/USD was down 0.71% at 1.3514, while EUR/USD dropped 0.37% to 1.1738.
The political backdrop darkened sharply for the currency after Home Secretary Shabana Mahmood joined more than 70 MPs in publicly calling for Starmer’s resignation.
Betting markets are now pricing a high probability that Starmer leaves office this year, and ING noted that investors are likely to treat any forthcoming address from the Prime Minister as a potential resignation announcement.
For the first time in a long while, a political risk premium is visibly emerging in EUR/GBP, though ING’s model still characterises it as modest, around 0.3% short-term overvaluation, suggesting the pound has considerable room to build a deeper negative premium if leadership uncertainty accelerates.
Andy Burnham, Wes Streeting and Angela Rayner are seen as the frontrunners to succeed Starmer, with markets particularly sensitive to Burnham’s fiscal views.
For EUR/USD, ING maintained a bearish-leaning view, noting the pair has held up on the back of resilient risk sentiment but warning that any meaningful equity correction would be incompatible with current levels.
Today’s eurozone ZEW surveys are expected to show a further deterioration in German sentiment. A break above 1.1800 looks unsustainable in the current environment, and a retest of 1.1700 remains the more likely near-term outcome.
Elsewhere, the dominant event risk for the dollar this session is the April U.S. CPI release. ING forecasts a second consecutive 0.9% MoM headline print, which would push the year-on-year rate to 4%, well above the 0.6% MoM / 3.7% YoY consensus, driven primarily by surging gasoline and diesel prices.
The core reading is seen rising a more moderate 0.3% MoM, in line with the 2.7% YoY consensus.