Pound Holds Near $1.36 as Political Uncertainty and Rate-Cut Bets Weigh

Sterling slipped below $1.35 after the UK Labour Party lost a special district election, fueling renewed concerns over Prime Minister Keir Starmer’s leadership. Labour lost Gorton and Denton, near Manchester, a seat it had comfortably held in the 2024 general election, with the Green Party taking first place and Labour finishing third behind Reform UK. The result heightens uncertainty over the positions of Starmer and Chancellor Rachel Reeves, amid concerns they could be replaced by ministers favoring increased fiscal spending, further straining the UK’s public finances. Meanwhile, the UK GfK Consumer Confidence Index dropped unexpectedly in February as rising unemployment weighed on sentiment. On the monetary policy front, traders are increasingly pricing in interest rate cuts from the Bank of England, following weaker employment data and continued easing of inflationary pressures.

Sterling slipped to $1.35 as voters headed to the polls in a closely watched UK by-election that could have broader political ramifications for PM Starmer. The contest in the Gorton and Denton constituency was triggered by the resignation of former Labour minister Andrew Gwynne. A defeat for the ruling Labour Party would likely rekindle speculation about Starmer’s leadership, particularly after mounting pressure linked to the Peter Mandelson controversy. Investors remain cautious that any political instability involving Starmer and Chancellor Reeves could open the door to a looser fiscal stance, heightening concerns over the UK’s debt trajectory. Markets are also digesting fresh external risks, including US President Trump’s new 10% global tariffs and a third round of US-Iran nuclear talks in Geneva. On the monetary policy front, traders are increasingly pricing in interest rate cuts from the BoE, following softer employment figures and continued easing in inflationary pressures.

Sterling remained little changed at $1.35, staying close to last week’s one-month lows, as US President Donald Trump’s new 10% global tariffs came into effect. Although Trump had threatened to raise the rate to 15% over the weekend, the lower-than-expected levy offers only limited relief for UK businesses. The tariffs follow a setback for Trump on Friday, when the US Supreme Court struck down his sweeping “liberation day” import duties imposed last year. Under the new measures, the US Customs agency will impose “an additional 10% ad valorem duty on imported articles of every country” for 150 days from Tuesday, unless specifically exempt. Meanwhile, William Bain, head of trade policy at the British Chambers of Commerce, noted that “while a new 10% tariff rate, instead of the threatened 15%, provides some relief, it highlights how difficult it is for businesses to plan ahead.”