The Pound to Dollar (GBP/USD) exchange rate slipped at the start of the week as renewed UK political uncertainty weighed on Sterling sentiment while the safe-haven US Dollar found support from fresh Middle East tensions.

At the time of writing, GBP/USD was trading around $1.3597, down roughly 0.2% on the day.

DAILY RECAP:

The Pound (GBP) came under pressure on Monday as renewed political uncertainty unsettled investors following Labour’s weak local election performance.

Current councillor changes show Labour down 202 seats, the Conservatives down 61, while Reform UK added 270 councillors. The Liberal Democrats gained 29 seats and the Greens added 23.

Sterling sentiment was dampened by reports that some Labour MPs are privately urging Prime Minister Keir Starmer to step down after the election losses.

Investors were concerned that further political instability could undermine confidence in the UK’s fiscal outlook at a time when markets remain highly sensitive to inflation and borrowing costs.

These concerns were reflected in rising UK bond yields amid speculation that any future leadership change could lead to looser fiscal policy.

Additional pressure on Sterling came after Bank of England policymaker Megan Greene suggested policymakers may need to wait before raising interest rates again, despite previously adopting a more hawkish stance.

Meanwhile, the US Dollar (USD) strengthened as fading optimism surrounding a US-Iran peace agreement revived safe-haven demand for the ‘Greenback’.

Market sentiment deteriorated after US President Donald Trump rejected Iran’s latest peace proposal, calling the response “totally unacceptable”.

At the same time, tensions surrounding the Strait of Hormuz intensified after Tehran warned of potential clashes in the region, helping support demand for defensive currencies.

GBP/USD Forecast: US Inflation and UK Politics in Focus

Looking ahead, the latest US inflation figures are likely to be the main focus for GBP/USD investors.

If consumer price inflation accelerated again in April, as expected, the data could reinforce expectations for higher US interest rates and provide additional support for the US Dollar.

For Sterling, political developments in Westminster are likely to remain closely watched.

Any further signs of instability surrounding Prime Minister Keir Starmer’s leadership or renewed pressure in UK bond markets could continue to weigh on the Pound in the near term.