Investing.com — Sterling extended its decline on Tuesday as mounting political pressure on Prime Minister Keir Starmer deepened the pound’s negative premium, with markets bracing for a potentially explosive U.S. CPI print later in the session.
As of 08:32 ET (12:32 GMT), was down 0.71% at 1.3514, while fell 0.37% to 1.1738.
The political backdrop darkened sharply for sterling after Home Secretary Shabana Mahmood joined more than 70 MPs in publicly calling for Starmer’s resignation.
Betting markets are now pricing a high probability that Starmer leaves office this year, and ING noted that investors are likely to treat any forthcoming address from the Prime Minister as a potential resignation announcement.
For the first time in a long while, a political risk premium is visibly emerging in , though ING’s model still characterises it as modest, around 0.3% short-term overvaluation, suggesting the pound has considerable room to build a deeper negative premium if leadership uncertainty accelerates.
Andy Burnham, Wes Streeting and Angela Rayner are seen as the frontrunners to succeed Starmer, with markets particularly sensitive to Burnham’s fiscal views.
The dominant event risk for the dollar and broader FX this session is the April U.S. CPI release. ING forecasts a second consecutive 0.9% MoM headline print, which would push the year-on-year rate to 4%, well above the 0.6% MoM / 3.7% YoY consensus, driven primarily by surging gasoline and diesel prices.
The core reading is seen rising a more moderate 0.3% MoM, in line with the 2.7% YoY consensus.
ING cautioned that even a hotter-than-expected headline may prove insufficient on its own to materially boost the dollar; the real question is whether elevated inflation figures, combined with the continued stall in U.S.-Iran negotiations, finally dent ultra-resilient equity markets.
Good days for the greenback have lately coincided with bad days for stocks, and it is through that equity channel, rather than rate differentials alone, that CPI is most likely to move DXY.
Geopolitical risk remained firmly in focus, with Trump declaring the ceasefire is “on life support” and reports of fresh military activity in the Strait of Hormuz keeping oil prices elevated. ING said the longer the US-Iran stalemate persists, the greater the medium-term upside risk for the dollar via a prolonged drag on global growth.
For EUR/USD, ING maintained a bearish-leaning view, noting the pair has held up on the back of resilient risk sentiment but warning that any meaningful equity correction would be incompatible with current levels.
Today’s eurozone ZEW surveys are expected to show a further deterioration in German sentiment. A break above 1.1800 looks unsustainable in the current environment, and a retest of 1.1700 remains the more likely near-term outcome.
