FX.co ★ Sterling Slumps on Burnham’s Potential Challenge to Starmer

The British pound slipped below $1.34, its weakest level since early April, and was on track for a weekly loss of nearly 2% against the US dollar. The move came after reports that Andy Burnham — regarded by bond investors as the least market-friendly option — could mount a leadership challenge to Prime Minister Keir Starmer following MP Josh Simons’ decision to step aside. Other possible challengers include Wes Streeting, Ed Miliband, and Angela Rayner, with Rayner viewed as carrying a risk profile similar to Burnham’s.

At the same time, inflation concerns intensified after US President Donald Trump remarked that “we don’t need the Strait of Hormuz open,” a comment that pushed crude oil prices higher. In response, markets are now pricing in roughly 70 basis points of interest rate hikes from the Bank of England this year. Huw Pill, the BOE’s chief economist, who supported a rate increase at the most recent meeting, has argued for additional tightening to counter inflationary pressures stemming from the energy shock linked to the war.