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After a weekend of increasing calls for Keir Starmer to announce a timetable for his departure as prime minister, social media messages on Sunday evening from leading Labour politicians caused the dials to quiver yesterday evening. However, for now the pound remains only a little down against the euro and US dollar compared to Friday.
Labour’s results in the local elections – a loss of around 1,200 seats – isn’t as bad as some predicted, and Starmer sought to restore confidence by bringing back former PM Gordon Brown in an economics role. That is just the sort of thing to impress the markets, but maybe not the voters, and yesterday afternoon Angela Rayner tweeted her support for the return not of Brown, but Manchester mayor Andy Burnham.
It looks as though matters will be coming to a head over the next 48 hours. This comes on top of an already-fragile global backdrop.
In the Strait of Hormuz the stop–start rhythm of “deal hopes” and “fresh strikes” has kept oil traders (and everyone who pays an energy bill) on edge. There have been new reports of US action around the strait and renewed warnings from Iran.
For currencies, confidence has been thin. Into Friday’s close, the pound and the euro were both a touch firmer against the dollar, with the euro and the pound broadly cancelling each other out. That’s less a vote of confidence in Europe, and more a reminder that the dollar can wobble when geopolitics pushes inflation expectations around and the next set of US data starts to look more awkward.
The next few days are packed with potential tripwires. In the UK, the political story will keep leaking into gilts, confidence and sterling sentiment. In the US, Tuesday brings the latest inflation release, which will land right in the middle of this oil-and-war inflation debate. And in Europe, rate expectations will be governed by data and any shift in tone from European Central Bank (ECB) rate setters.
GBP: Politics is back in the driving seat
Sterling heads into the week with serious questions to answer – Is this the end of Starmer? If so, who might replace him? And whoever is leader of the country, how predictable are the next six months? So, even though the data calendar is quiet over the next few days, sterling could be in for a bumpy ride. The key data point of this week is Gross Domestic Product (GDP) on Thursday for the first quarter of 2026. With the government aware that the only way out of its problems is economic growth, this will be of interest.GBP/USD: the past year
EUR: The euro keeps finding support
The euro held up reasonably well last week, despite as dire a set of PMI (Purchasing Managers Index) results as we’ve seen for a while. We’ve got final inflation figures this week and the highly influential ZEW Economic Sentiment Index for both Germany and the wider bloc. However, the oil price and Straits of Hormuz story continue to be the dominant factor.GBP/EUR: the past year
USD: Non-Farm Payrolls surprise market
Last week ended with a more buoyant than expected jobs report from the US. Even so, a bad week followed a bad month for the dollar, especially against the pound, as USD’s safe-haven appeal faded. The main event this week is inflation on Tuesday, with a rise to 3.4% expected by the markets.USD/GBP: the past year
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