Modified: Sunday, 10 May 2026 08:41 BST

– Written by


Ben Hughes

STORY LINK Pound Sterling to Dollar Forecast: GBP Firm as Starmer Faces Election Fallout

The Pound to Dollar (GBP/USD) exchange rate held above the 1.3600 level on Friday as Sterling remained relatively resilient despite mounting political pressure on Prime Minister Keir Starmer following heavy Labour losses in the UK local elections.

Currency markets continued to monitor the political fallout after results showed Reform UK and the Green Party making substantial gains at Labour’s expense, increasing speculation over Starmer’s long-term leadership position and the potential implications for UK fiscal policy.

The US Dollar remained generally weaker amid firm global risk appetite and expectations surrounding Friday’s US jobs report.

The Pound secured net gains on Thursday amid a softer dollar tone while investors waited for the full local election results and the potential implications for Starmer’s leadership.

According to Danske Bank; “Gilt markets are sensitive to this outcome, as it could signal a shift towards a more lenient fiscal policy.”

Initial results released overnight confirmed severe Labour losses across England, Scotland and Wales, intensifying questions over Starmer’s authority within the party.

Nick Rees, head of macro research at Monex Europe, warned that markets were still underestimating Sterling risks.

He stated; “No one wanted to be the leader who would wear the local election loss. That risk is out of the way tomorrow, so regardless of what happens, Starmer’s more vulnerable.”

He added; “Markets haven’t priced that in but they will at some point.”

ING maintained a cautious stance on Sterling and argued that the Pound remained exposed to further political fallout following Labour’s weak performance.

Political Uncertainty Builds Around Starmer

Pressure on Starmer intensified after Labour suffered one of its worst local election performances in decades, with growing criticism from within the party and renewed speculation over possible leadership challengers.

Reuters reported that more than 20 Labour MPs had privately or publicly raised concerns over Starmer’s future following the results.

Markets remain particularly sensitive to the possibility that Labour could respond to the election setback with a looser fiscal stance or a shift towards more left-leaning policies.

According to ING; “The pound and gilts are currently embedding no visible political risk premium.”

The bank warned there remained scope for Sterling weakness if investors became more concerned over fiscal sustainability and political instability.

Dollar Held Back by Firm Risk Appetite

As far as geo-politics are concerned, Iran stated that it was reviewing a US peace proposal that sources indicated would formally end the war but leave unresolved key US demands that Iran suspend its nuclear programme and reopen the Strait of Hormuz.

MUFG commented; “Overall, the latest developments add to investor confidence that the US and Iran continue to make progress to find a diplomatic solution to end the conflict and re-open the Strait.”

It added; “The improvement in global investor risk sentiment and drop in energy prices is providing a tailwind for emerging market currency performance.”

RBC Capital Markets head of global commodity strategy Helima Croft injected a note of caution.

According to Croft; “It remains far from clear that there is any material movement toward reopening the Strait, or if we are instead stuck in a rebranded ‘ceasefire with no oil’ purgatory.”

The dollar index traded near 97.85 as the US currency continued to track broader market sentiment.

ING noted that recent dollar moves remained closely correlated with equity markets.

It added; “Any major further leg lower in the USD still requires a strong equity session, regardless of oil moves.”

According to the bank; “The strength in risk assets and more balanced positioning suggest that DXY can easily fall back below the 97.50 pre-war levels, even if oil prices settle significantly above February levels.”

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TAGS: Pound Dollar Forecasts