(Investorideas.com Newswire), a platform for big investment ideas including AI and technology stocks, publishes market commentary from deVere Group.
British Prime Minister Keir Starmer is making the pound vulnerable, with political risk now firmly entrenched in the pricing of sterling, warns Nigel Green, CEO of financial advisory giant deVere Group.
The weakness of sterling is no longer abstract. In recent sessions, the pound has fallen to multi-week lows against both major counterparts, trading around $1.35-$1.36 against the dollar and €1.14-€1.15 against the euro after previous strength faded. Against the euro, sterling has fallen by more than 0.5% in one session.
The immediate reason was monetary. The Bank of England’s decision last week to keep interest rates at 3.75% was taken by a 5-4 vote, prompting investors to raise their expectations for rate cuts later this year. UK front-end yields fell sharply, removing one of the remaining points of support for the pound.
Political developments subsequently reinforced the sell-off. The government’s decision to appoint Peter Mandelson as ambassador to Washington renewed scrutiny of his past dealings with Jeffrey Epstein, an issue that quickly became a flashpoint within Westminster.
The controversy escalated when Morgan McSweeney, the prime minister’s chief of staff and a central figure in Labour’s election campaign, resigned on Sunday amid mounting internal resistance.
His departure exposed tensions at the center of government and sharpened questions about judgment and control.
Nigel Green says markets have reacted to events rather than speculation.
“The currency markets are reacting immediately to Keir Starmer’s leadership being tested,” he notes.
“The Prime Minister has lost a chief of staff in the middle of a political crisis linked to a controversial appointment. Investors are reassessing risks in real time. Sterling is reflecting that reassessment.”
On the days surrounding the Bank of England vote and McSweeney’s resignation, sterling underperformed the euro and the dollar, even as broader global risk sentiment remained relatively stable.
The euro against sterling rate moved back to £0.87, signaling weakness in the pound rather than strength in the euro.
Options markets reinforce the message. Hedge funds have increased demand for downside protection for sterling, a sign that investors are preparing for continued volatility rather than a quick recovery.
“When funds pay for protection against further falls, they are reacting to what they see in front of them,” says Nigel Green. “Keir Starmer’s political problems have become a living variable in the way the pound is traded.”
The Bank of England’s tight mood is also important because it undermines confidence in Britain’s interest rate prospects.
“A margin of one vote indicates that the direction of market policy is balanced,” says Nigel Green.
“If that happens at the same time that political authority is weakening under Keir Starmer, the pound will lose support from both sides.”
Politics has therefore exacerbated the monetary shift. Mandelson’s appointment and McSweeney’s resignation have shifted the focus to leadership discipline and decision-making at the top of government.
“Currency markets prize credibility,” says Nigel Green. “When investors question Keir Starmer’s control over his own administration, they reduce exposure. The pound quickly absorbs that loss of confidence.”
The result is that the pound is increasingly traded as a political currency. Positive economic data has struggled to keep rallies going, while negative domestic headlines have led to sharp selling.
This is of great importance to Britain because it is dependent on the inflow of foreign capital. Trust in leadership plays a central role in maintaining demand for sterling-denominated assets.
“International investors are selective,” explains the CEO of deVere. “As confidence in Keir Starmer weakens, they demand a higher premium or step aside. The currency is where that adjustment first appears.”
Looking ahead, the base case for the pound remains difficult as long as the current political situation continues.
“As long as Keir Starmer remains under continued pressure from the political leadership, sterling will remain exposed,” concludes Nigel Green.
“Until authority is clearly restored, vulnerability is likely to shape the pound’s outlook.”
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