The GBPUSD exchange rate has seen a sharp move lower as the UK’s financial stresses outweigh the bearish dollar theme.
GBPUSD – Daily Chart
The GBPUSD has slumped to create a very bearish candle on the daily chart. That could open up the support at 1.3142, which is a barrier to lower levels.
The weakness in the British pound, which was the biggest single-day drop since 2023, highlighted the vulnerability of UK markets at a time of growing concern about the Labour government’s economic direction.
Lloyds Bank’s FX strategist Nick Kennedy said the UK has had a ‘perilous’ fiscal backdrop, which will only get worse over time.
“The UK has had a perilous fiscal backdrop and that’s going to continue,” he said. “Over the summer, there has been a bit of a risk premium built into the rates market. Investors are now wanting more of a risk premium for sterling as well”.
UK Prime Minister Keir Starmer embarked on a reshuffle of his economic team, which brought three economic advisers in to work with the embattled Chancellor ahead of a key budget.
With the annual budget unlikely to be held before November 2025, the UK is facing weeks of speculation on potential tax increases, which could potentially dampen investments and consumer confidence further.
“With each gilt ‘episode’ and subsequent rise in yields we are getting closer to the endgame where the government’s options are running out,” BlueBay Asset Management fund manager Neil Mehta said.
“The endgame could consist of the government reneging on manifesto commitments and possibly even the end of Starmer/Reeves, but ultimately the UK’s economic problems lie deep (energy, housing, labour) which could take a much longer time and bigger political shakeup,” he added.
The pound was moving higher on a global anti-dollar theme, but recent financial stresses in France and Britain could lead to a dollar rally emerging.
