The British pound fell to $1.32 on Monday, nearing its lowest level this year after Prime Minister Keir Starmer resigned. His departure sets the stage for a new Labour Party leader to be chosen by early September, with long-serving Manchester mayor Andy Burnham widely viewed as the frontrunner following his by-election victory last week.
Burnham is regarded as fiscally dovish and has advocated higher government spending. This stance has weighed on sterling and pushed gilt prices higher across the curve, as investors anticipate looser fiscal policy. With UK bond yields already the highest among G7 economies, the shift has prompted some foreign investors to reduce exposure to pound-denominated assets.
On the monetary policy side, the Bank of England kept interest rates unchanged at 3.75% this month and reiterated a cautious outlook. The central bank also lowered its forecast for peak inflation in the fourth quarter of 2026 to 3.25%, down from its previous projection of 3.6%.
