GBPUSD Off Lows After Starmer Resignation

The UK Prime Minister resigned as widely expected, leaving markets to focus on what a new government might bring for the pound and on who will be the next Chancellor as the major focal point for traders.

Key Elements Moving the Markets

• Markets have had a muted reaction to Starmer's resignation, as it was well telegraphed and already priced in.
• The prospect of an orderly transition without a leadership contest helps reassure markets and avoids uncertainty around key issues.
• The focus is now on whether Burnham will maintain fiscal rules, whether Reeves can remain Chancellor, and who might replace her.

UK to Have Seventh PM Since Brexit

On Monday, UK Prime Minister Keir Starmer presented his long-anticipated resignation just as his chief rival, Andy Burnham, was sworn in as MP. The market reaction was fairly muted, with the pound weakening slightly and the FTSE 100 gaining, given how expected the outcome was. Starmer's announcement seemed to promise an orderly transition, with the other potential contender for the office, Wes Streeting, saying he wouldn't seek a leadership challenge. If Burnham runs unopposed, he could be sworn in before the end of summer recess on 16th July, making him the seventh PM in ten years and the fourth in just five years. The rapid succession of heads of government underscores one of the main challenges for the potential new Premier: balancing public demands within a tight fiscal framework. Markets are steady so far, given the relative certainty, with the main focus on who will lead the Treasury.

Traders are closely watching developments as Labour considers whether to hold a leadership contest. If that happens, the increased uncertainty could hurt the pound. If not, then the focus will be on Burnham's replacement for current Chancellor Rachel Reeves. During his parliamentary bid, widely considered a campaign to replace Starmer, Burnham said he would maintain Reeves' fiscal rules, which helped reassure markets. In fact, the pound rebounded following those remarks, as traders largely saw him most likely residing in Downing Street. Media reports suggest Reeves will most likely be replaced, with former Health Secretary Wes Streeting considered a likely successor, although he has denied the speculation. The more centrist figure would help reassure markets that he will stick to the current fiscal rules. But if other rumoured candidates gain traction, such as Ed Miliband and Yvette Cooper, markets could get nervous and weigh on sterling.

Markets Move Beyond Politics

The modest decline in sterling following Starmer's announcement suggests markets are moving on to the next issue after the political drama. The sooner there is confirmation of who will be the Chancellor, the less room there will be for uncertainty, and that will likely support the markets. The focus now shifts to Andy Burnham's expected speech on the economy next week. Traders will be looking for clues about the next Budget and whether complicated issues such as increased taxes and spending will resurface. Those could weigh on sterling, while signs that the fiscal rules will remain in place could help the currency rebound as energy prices fall.  

GBPUSD Triangle Failure Leads to Potential Double Bottom

After failing to complete a triangle pattern near 1.3350, GBPUSD declined to 1.3160, where it formed a potential double bottom. If the bulls reclaim 1.3300, the lower auto-trendline and the middle VWAP resistance, the next level of focus lies at 1.3460, followed by 1.3660, the subsequent swing high. On the flip side, if the double bottom pattern fails, it will expose 1.3040 and further deepen the recent breakdown.

Source: SpreadEx | GBPUSD, Daily Chart