Pound Holds Near $1.33; Pantheon Says Political Relief Short-Lived

Sterling traded near $1.33 against the dollar on Tuesday, little changed from Monday's close. Prime Minister Keir Starmer resigned the day before, removing a political overhang that had kept the pound under pressure in recent weeks. Traders said the limited move suggests the market had already priced out the tail risk of a snap election. Against the euro, the pound edged up to €1.1950.

Pantheon Macroeconomics said the resignation does little to shift the UK's macro outlook. The firm's UK economists argued that falling oil prices have been a tailwind for the pound by easing import costs. Political noise, they estimate, has offset roughly half of that benefit since the start of the year. The resignation removes a near-term distraction rather than a structural drag.

Brent crude has dropped from $85 a barrel in early March to around $78 now. That decline reduces the UK's energy import bill and eases inflation pressure. Pantheon's estimate suggests the political turmoil has negated much of that gain. Pantheon said a further decline in oil prices could provide additional support for the pound. The political noise factor is unlikely to disappear entirely, the firm said.

The GBP/USD profile has traded in a $1.32-$1.34 range since mid-March. A break above $1.34 would need a clear signal from the Bank of England that it is ready to ease, or a sustained drop in oil prices feeding through to lower consumer prices. A break below $1.32 would likely come from a hawkish surprise in US data that pushes the dollar higher.

The Bank of England faces a difficult path. Services inflation remains above 5%. Wage growth has not cooled enough to give the Monetary Policy Committee confidence that price pressures are sustainably easing. Pantheon expects the first rate cut in August, later than the June move some traders had priced before the political turmoil. The resignation does not change that timeline.