Sterling remains under pressure and is on course for its worst monthly performance against the US Dollar since July 2025. The Pound has fallen around 2.2% during June, trading close to recent lows, its weakest level since November, as investors continue to reassess both the UK's political outlook and expectations for Bank of England policy.
One of the biggest drivers has been the sharp change in the outlook for interest rates. Following the suspension of hostilities between the United States and Iran, shipping has resumed through the Strait of Hormuz, allowing energy supplies to flow more freely. As a result, crude oil prices have fallen by around 20% over the past two weeks, easing concerns that another energy-driven inflation spike could force the Bank of England to raise interest rates aggressively.
Markets have reacted by scaling back expectations for further tightening. Just a few weeks ago, traders were pricing in two Bank of England rate hikes before the end of the year. That expectation has now fallen to just one, removing an important source of support for Sterling.
Politics is adding further uncertainty.
Following the resignation of Keir Starmer, the UK is preparing to appoint its seventh Prime Minister in the ten years since the Brexit referendum, highlighting another period of political instability for financial markets to navigate.
Attention has quickly turned to Andy Burnham, who is widely regarded as the frontrunner to replace Starmer after returning to Parliament this week. However, investors are less focused on who becomes Prime Minister and more interested in who will be appointed as Chancellor.
The Chancellor plays a crucial role in shaping government spending, taxation and borrowing policy. Markets will therefore be looking closely at whether the next government maintains the current fiscal rules and whether it can continue to retain the confidence of bond investors.
In short, Sterling is currently facing pressure from two directions. Falling energy prices have reduced expectations for higher UK interest rates, while political uncertainty has created fresh questions over the future direction of government policy. Until markets gain greater clarity on both issues, the Pound is likely to remain sensitive to both political headlines and incoming economic data.
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