GBP/USD slides below 1.3200 as UK political vacuum and weak PMI weigh on sterling

Starmer's resignation triggers a leadership transition with no new PM until September; soft June PMI and hawkish Fed expectations add further pressure on Cable.

Source: UK Government, S&P Global PMI, CME FedWatch

Market Snapshot

• GBP/USD: ~1.3195 ↓ early European session
• UK Flash Composite PMI (June): 49.4 ↓ from 49.7 · 14-month low
• UK Manufacturing PMI (June): 53.1 ↓ from 53.9 · 3-month low
• Fed Dec hike probability (CME FedWatch): 86.1% ↑ from 61% pre-FOMC
• UK PM transition timeline: nominations Jul 9–16 · new leader by Sept 2026

GBP/USD under pressure from politics and weak data

GBP/USD extended its decline below the 1.3200 level during Wednesday’s early European session, pressured by a combination of domestic political uncertainty and strengthening US dollar expectations.

The pound came under pressure following Prime Minister Keir Starmer’s resignation on 22 June outside 10 Downing Street. Starmer stepped down after losing the confidence of his parliamentary party, following Andy Burnham’s victory in the Makerfield by-election on 18 June. He confirmed he will remain as caretaker Prime Minister until a successor is chosen. The Labour Party’s National Executive Committee will open nominations on 9 July, with the process closing before Parliament’s summer recess on 16 July. If no rival candidate emerges, Burnham — who has confirmed he will stand — is expected to take office in mid-to-late July, or by 1 September at the latest if a contest proceeds.

The political uncertainty adds to already weakening economic momentum. The S&P Global Flash UK Composite PMI fell to 49.4 in June from 49.7 in May, marking a 14-month low and the second consecutive month below the 50 expansion threshold. The Manufacturing PMI eased to 53.1 from 53.9, a three-month low, with S&P Global noting that earlier frontloading of orders linked to geopolitical supply concerns is fading. The services sector remained subdued, with weaker new orders driven by soft domestic demand and elevated uncertainty.

On the US side, Federal Reserve rate-hike expectations have strengthened significantly since the latest FOMC meeting. Markets now assign an 86.1% probability of at least one rate hike by December, up from 61% before the meeting, according to CME FedWatch. Nine of the 19 FOMC members projected a rate increase in 2026, while new Fed Chair Kevin Warsh reinforced a strong anti-inflation stance and reduced emphasis on forward guidance. Investors now turn to Thursday’s US PCE inflation data for the next major catalyst.

Key Drivers

• UK political transition · leadership vacuum until September
• Composite PMI 49.4 · 14-month low
• Manufacturing PMI 53.1 · slowing momentum
• Fed Dec hike odds at 86.1%
• USD at multi-month highs
• US PCE inflation data due Thursday

Sources: UK Government (10 Downing Street statement) · S&P Global Flash UK PMI (spglobal.com) · CME FedWatch Tool · Labour Party leadership timeline statements