FX.co ★ Sterling Slumps 1% amid Political Turmoil

The British pound has fallen by more than 1%, dropping below $1.36, as political instability and growing uncertainties over the UK's fiscal leadership intensify. Speculation has intensified following an emotional display by Chancellor Rachel Reeves during Prime Minister’s Questions, coupled with Prime Minister Keir Starmer's failure to express explicit support for her after the government's reversal on a contentious welfare bill. Although Downing Street has denied rumors of a resignation and the Treasury has attributed Reeves' emotional response to personal reasons, the markets have grown increasingly anxious. This development further amplifies concerns regarding fiscal credibility, particularly in light of the recent budget retreat and the limited fiscal flexibility. Investors are apprehensive that instability surrounding Reeves’ position might jeopardize the UK's economic strategies, leading to market sell-offs. Concurrently, Bank of England policymaker Alan Taylor has advocated for faster rate cuts, cautioning against the escalating risk of an economic downturn.