Sterling Drops After Burnham Win

The British pound slipped below $1.32, its lowest level since late March, after Greater Manchester Mayor Andy Burnham won the Makerfield by-election with 54.8% of the vote, strengthening his position as a potential challenger to Prime Minister Keir Starmer. Investors also digested the latest decisions from the Bank of England and the US Federal Reserve. As expected, the BoE voted 7–2 to keep interest rates unchanged at 3.75%, while maintaining a cautious outlook due to uncertainty surrounding the economic impact of Middle East-related energy shocks. The BoE reiterated its readiness to respond to inflation pressures, although it lowered its forecast for peak inflation in Q4 2026 to 3.25% from 3.6%. The decision followed the Fed's move to hold rates steady, despite a growing number of policymakers signaling the possibility of further tightening this year.

The British pound fell toward $1.32, reaching its lowest level since April 3, after the Bank of England voted 7-2 to maintain interest rates at 3.75%, in line with expectations. Policymakers adopted a cautious stance, citing uncertainty over the economic impact of the energy shock driven by the Middle East conflict. The BoE reiterated its readiness to act on inflation, with Governor Andrew Bailey emphasizing that pressures from the Iran conflict persist despite the ceasefire and potential deal. The Monetary Policy Committee expects inflation to rise later this year as cost increases spread across the economy, though it reduced its peak inflation forecast to 3.25% for Q4 2026, down from 3.6%. This decision follows the US Federal Reserve’s move to hold rates steady, though nine of its 19 policymakers now expect at least one hike this year. Meanwhile, investors await the Makerfield by-election results, which could shape Labour’s leadership and economic direction.

The British pound steadied at $1.33, near its weakest level since April 7, as investors assessed fresh UK labor data ahead of the Bank of England’s policy decision and the Makerfield by-election results, which could influence Labour’s leadership and economic agenda. UK unemployment unexpectedly fell to 4.9% in the three months to April, below forecasts of 5.0%, while wage growth accelerated to 4.4%, surpassing the 4.0% estimate. Private sector earnings matched expectations at 2.9%, easing from 3.0% previously, which may reassure BoE officials that wage-driven inflation pressures remain contained. Later today, the Bank of England is widely expected to hold rates, but any dissent among policymakers could signal a hawkish shift. This follows the Fed’s decision to maintain rates, though nine of its 19 policymakers now anticipate at least one hike this year.