Starmer Puts Pound At Risk
UK Prime Minister Keir Starmer is making the pound vulnerable, with political risk now being firmly embedded in sterling pricing, warns Nigel Green, CEO of financial advisory giant deVere Group.
Sterling weakness is no longer abstract. In recent sessions, the pound has slipped to multi-week lows against both major counterparts, trading around $1.35–$1.36 versus the dollar and €1.14–€1.15 against the euro, after earlier strength faded. Against the euro, sterling has fallen more than 0.5% in a single session.
The immediate trigger was monetary. The Bank of England's decision last week to hold interest rates at 3.75% was decided by a 5–4 vote, prompting traders to bring forward expectations for rate cuts later this year. UK front-end yields fell sharply, removing one of the pound's remaining supports.
Political developments then intensified the sell-off. The government's decision to appoint Peter Mandelson as ambassador to Washington reignited scrutiny of his past association with Jeffrey Epstein, an issue that quickly became a flashpoint inside 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 growing internal backlash.
His departure exposed strains at the centre of government and sharpened questions over judgement and control.
Nigel Green says markets have responded to events rather than speculation.
On the days surrounding the Bank of England vote and McSweeney's resignation, sterling underperformed both the euro and the dollar, even as broader global risk sentiment remained relatively stable.
The euro-sterling rate moved back toward £0.87, signalling pound weakness rather than euro strength.
Options markets reinforce the message. Hedge funds have increased demand for downside protection on sterling, a sign that investors are preparing for continued volatility rather than a rapid recovery.
The narrow Bank of England vote also matters because it undermines confidence in the UK's rate outlook.
Politics has therefore compounded the monetary shift. The Mandelson appointment and McSweeney's resignation have moved the focus onto leadership discipline and decision-making at the top of government.
The result is a pound trading increasingly as a political currency. Positive economic data has struggled to sustain rallies, while negative domestic headlines have triggered sharp selling.
This matters acutely for the UK because it depends on foreign capital inflows. Confidence in leadership plays a central role in maintaining demand for sterling-denominated assets.
Looking ahead, the base case for the pound remains difficult while the current political situation persists.
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