Pound Sterling breaks down as Labour turmoil overshadows stronger UK GDP data

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GBP/USD fell 0.9% on Thursday, breaking below 1.3500 in a sharp staircase decline from session highs to a low close to 1.3395. The move extended a multi-week downtrend from the early-March peak, with bearish momentum building through the European afternoon. The daily candle closed near session lows.

Cabinet resignations and calls from Labour MPs for Keir Starmer to step down weighed on the Pound Sterling.
UK Q1 GDP rose 0.6% QoQ and 1.1% YoY while March Manufacturing Production jumped 1.2% MoM against a -0.2% consensus.
US Retail Sales matched at 0.5% MoM while Initial Jobless Claims climbed to 211K against a 205K consensus.

The Pound Sterling came under heavy pressure on Thursday as the political crisis around Prime Minister Keir Starmer deepened. After Labour's heavy losses in the 7 May local elections, four cabinet ministers resigned this week, including Safeguarding Minister Jess Phillips, and close to 100 Labour MPs publicly called on Starmer to resign or set a departure timeline. Health Secretary Wes Streeting was reported to be weighing a leadership challenge, although Starmer remained defiant after 111 MPs signed a statement of support. Stronger UK data failed to lift the currency: Q1 GDP rose 0.6% QoQ in line with consensus and 1.1% YoY against a 0.8% forecast, while March Manufacturing Production jumped 1.2% MoM against a -0.2% consensus. UK Claimant Count Change, Employment Change, and Average Earnings prints land next Tuesday.

On the US Dollar side, April Retail Sales matched consensus at 0.5% MoM while ex-autos topped expectations at 0.7%, and Initial Jobless Claims edged up to 211K against a 205K consensus. Four Fed officials including New York Fed President John Williams crossed the wires Thursday. The week ahead carries heavy US event risk with the FOMC Minutes on Wednesday, S&P Global Purchasing Managers Index (PMI) prints Thursday, and Friday's University of Michigan (UoM) consumer sentiment and inflation expectations releases.

GBP/USD 5-minute chart

Technical Analysis

In the five-minute chart, GBP/USD trades at 1.3406, holding in a bearish near-term stance after slipping well below the day’s open at 1.3527, which now acts as overhead resistance. The elevated Stochastic RSI near 96 suggests the latest bounce is occurring in overbought territory within a broader intraday decline, hinting that upside attempts could remain capped while the pair trades under the early-session high ground.

On the topside, the day’s open around 1.3527 is the first meaningful resistance to watch, as a recovery above this area would be needed to ease immediate downside pressure. With no nearby structural supports identified on this micro timeframe, price action remains vulnerable to further weakness as long as sellers defend the area north of 1.35.

In the daily chart, GBP/USD trades at 1.3406, keeping a bearish near-term bias as spot holds beneath the 50-day exponential moving average (EMA) at 1.3481. The pair has retreated from recent highs and is now trading back under this key dynamic barrier, suggesting rallies are likely to face selling interest, while the Stochastic RSI easing towards the mid-40s hints that upside momentum is fading rather than rebuilding.

On the topside, immediate resistance is located at the 50-day EMA around 1.3481, and a decisive break above this level would be needed to ease the current downside pressure and open the way for a more constructive recovery. Until that occurs, short-term risks remain skewed lower, with traders likely to sell into rebounds while momentum stays soft and price action fails to reclaim the aforementioned moving average.

(The technical analysis of this story was written with the help of an AI tool.)

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.