The 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.
“Currency markets are reacting directly to Keir Starmer’s leadership being tested,” he notes.
“The Prime Minister has lost a Chief of Staff in the middle of a political crisis tied to a controversial appointment, investors are reassessing risk in real-time. Sterling reflects that reassessment.”
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.
“When funds pay for protection against further falls, they’re responding to what they see in front of them,” Nigel Green says. “Keir Starmer’s political difficulties have become a live variable in how the pound is traded.”
The narrow Bank of England vote also matters because it undermines confidence in the UK’s rate outlook.
“A one-vote margin tells markets policy direction is finely balanced,” Nigel Green says.
“When that happens at the same time as political authority weakens under Keir Starmer, sterling loses support from both sides.”
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.
“Currency markets price credibility,” Nigel Green says. “When investors question Keir Starmer’s control over his own administration, they reduce exposure. The pound absorbs that loss of confidence quickly.”
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.
“International investors are selective,” explains the deVere CEO. “As confidence in Keir Starmer weakens, they demand a higher premium or step aside. The currency is where that adjustment appears first.”
Looking ahead, the base case for the pound remains difficult while the current political situation persists.
“As long as Keir Starmer remains under sustained political leadership pressure, sterling stays exposed,” Nigel Green concludes.
“Until authority is clearly re-established, vulnerability is likely to define the pound’s outlook.”
