Pound Rallies as Markets Welcome Prime Minister Keir Starmer’s Resignation 🇬🇧 🚀

The British pound is rallying against all major currencies following the announcement that UK’s first prime minister after Labour’s 2024 takeover, Keir Starmer, is resigning from his position.

Resignation Announcement

• What Happened: U.K. Prime Minister Keir Starmer announced his resignation as both Labour leader and prime minister, conceding that colleagues doubted his ability to lead the party into the next election.

• Transition Period: To ensure an orderly handover of power, Starmer will remain in office until the Labour Party completes its formal leadership contest.

• What's Next: A formal process to select a new leader has begun. Andy Burnham, who recently won a parliamentary seat, is the telegraphed successor and frontrunner, with the transition expected to conclude within weeks if he runs unopposed. The nomination period is scheduled from June 9th to June 16th, with a new PM to be chosen by the end of summer holidays.

Market Reaction

• The Pound (GBP): The British Pound slid in the first reaction to the news but quickly reversed and is currently outperforming major currencies following the news, rallying 0.85% against the Yen, 0.55% against the Euro and 0.55% against the Dollar as markets welcomed the end of the political gridlock.

• Gilts (U.K. Bonds): Yields on 10-year U.K. government bonds are down by 4 basis points today to 4.80%, following the announcement. Recall that 10Y gilts initially jumped following Burnham’s by-election win but remained flat at 4.8452% early Monday. Burnham has actively soothed bond markets by committing to strict fiscal rules.

• Equities and Investor Sentiment: Broad market sentiment reacted with relief rather than panic, with UK’s key stoch benchmark FTSE 100 heading towards the end of the session in the green (+0.6%). Investors welcomed the telegraphed succession and Burnham's promises of fiscal moderation, easing fears of reckless economic policies or a sudden power void.

Despite a rather low volatility of the spread between German and British 10-year bond yields, EURGBP has dropped to its almost 2-weeks low. Germany’s similar fiscal and growth worries could keep the yields in sync and limit the spread’s vol, which could act as an anchor before a prolonged bearish breakdown. Source: XTB Research

The Context

Starmer’s resignation ends a short tenure of less than two years following his 2024 landslide victory. His departure stems from heavy local election losses in May, internal rebellion over fiscal policies, and controversial appointments. The final blow occurred on June 18 when telegraphed successor Andy Burnham won a decisive by-election in Makerfield, cementing the inevitable push for new leadership.

EURGBP (H4)

The pair exhibits a sharp bearish breakdown, highlighted by a massive red candle piercing both the 30 and 100 EMAs. The price has plummeted from its recent 0.8678 peak, slicing through multiple Fibonacci supports. It is currently testing the critical 78.6% retracement level at 0.8632. Momentum is heavily negative, with the RSI plunging to 35.0, rapidly approaching oversold conditions. A sustained break below this support exposes the 100% extension at 0.8620.

Source: xStation5