🇬🇧 UK Political Fragmentation Weighs on Sterling Amid Leadership Uncertainty
Recent weeks have seen growing political uncertainty weigh on Sterling markets, as speculation surrounding Keir Starmer’s potential resignation and the emergence of Greater Manchester Mayor Andy Burnham as a possible successor increased fears of a more interventionist Labour government. GBP reacted sharply, with Cable falling nearly 1.8% and GBP/EUR depreciating close to 1% last Friday amid markets concerns over fiscal credibility and political instability.
Market volatility has also been intensified by the increasingly fragmented UK political landscape. Makerfield has increasingly emerged as a focal point of Britain’s fragmented political landscape, with Reform UK projected to dominate the constituency while Rupert Lowe’s Restore Britain movement further reflects growing anti-establishment and populist pressure on the traditional two-party system.
Some analysts have drawn comparisons to the market reaction during Liz Truss’ 2022 mini-budget crisis, reflecting sensitivity toward the prospect of expansive fiscal policy. However, Burnham’s candidacy also presents a more complex economic picture, with the Greater Manchester Combined Authority highlighting average annual regional growth of 3.1% since 2015, making it one of the UK’s fastest growing regions. Attention is now turning toward the Makerfield by-election, currently viewed as a potential Reform UK stronghold, with polling firms projecting Reform at 45.3% of the vote.
🇺🇸 USD Accelerates Amid Fed Expectations and Rising Geopolitical Tensions
USD has continued to strengthen amid rising geopolitical tensions and shifting inflation expectations, reinforcing broader downside pressure on both GBP and EUR. The outperformance of the Dollar is not difficult to explain, as markets have increasingly accepted the possibility that the Federal Reserve may be forced to raise interest rates later this year, with persistent inflation pressures and the resilience of the USD becoming increasingly difficult to ignore. This shift in expectations has been reflected in rising US bond yields, further supporting demand for USD denominated assets and strengthening USD exchange rates.
US President Donald Trump warned this past weekend ‘the clock is ticking’ for Iran as ceasefire negotiations stalled, intensifying fears of further regional escalation. As tensions persist, demand for USD IS likely to remain elevated, particularly as political uncertainty within the UK continues to weaken confidence in Sterling. Similar pressures have also impacted EUR/USD, with the Euro depreciating by over 1% against USD over the past week as investors increasingly favour the relative stability and yield advantages of the Dollar.
🇪🇺 Euro Holds Ground Against Sterling Despite Dollar Pressure
As previously discussed, the Euro has extended its gains against GBP. Meanwhile, tensions in the Middle East continue to influence market positioning, with the US strengthening against the Euro. EUR/USD is down by nearly 1.5% over the month, including a decline of more than 1% over the past week.
From a domestic perspective, there were some positive signs for the eurozone. Industrial production in both the eurozone and the wider EU rose by 0.2% month on month in March 2026, meaning factories, energy producers and industrial firms produced slightly more than they did in February. However, compared with March 2025, production was still down by 2.1% in the eurozone and 1.9% in the EU.
Overall, the short-term picture has improved slightly, but the annual trend remains negative. This raises questions about the longer-term impact of tariffs and how effectively the eurozone can navigate external trade pressures. Looking ahead, markets will be watching this week’s key eurozone inflation and growth data for further direction.
This Week’s Currency In Focus -Swiss Franc
This week’s currency in focus is the Swiss franc, as markets increasingly expect its long-term appreciation trend to continue. The Swiss franc has strengthened by around 6% over the past year against USD. Short-term momentum has also supported the move, with the franc rising since the beginning of the year as safe-haven demand which has increased amid ongoing tensions in the Middle East. Domestic flows have added a further layer of support. Swiss investors have been structurally reducing their exposure to foreign assets, creating sustained demand for the home currency. Taken together, these factors suggest the Franc may remain well supported, particularly if geopolitical uncertainty persists and investors continue to favour safe-haven currencies.
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