Pound Regains Ground as Bond Rout Deepens. Forecast as of 18.05.2026
by Dmitri Demidenko, reviewed by Jane Kane
Major Takeaways
- The British Prime Minister may be forced to resign.
- Investors are demanding a higher risk premium.
- The pound may lose a key advantage.
- Short positions opened at 1.355 can be increased on upward pullbacks.
- The British Prime Minister may be forced to resign.
- Investors are demanding a higher risk premium.
- The pound may lose a key advantage.
- Short positions opened at 1.355 can be increased on upward pullbacks.
Weekly Fundamental Forecast for Pound Sterling
When roughly a third of a country's debt is held by foreign investors, its currency becomes highly vulnerable to political turmoil. The pound fell to a five-week low as Keir Starmer faces mounting pressure over his political future. Around one hundred Labour MPs are reportedly calling for his resignation, triggering a sharp sell-off in government bonds and placing significant pressure on GBP/USD quotes.
When roughly a third of a country's debt is held by foreign investors, its currency becomes highly vulnerable to political turmoil. The pound fell to a five-week low as Keir Starmer faces mounting pressure over his political future. Around one hundred Labour MPs are reportedly calling for his resignation, triggering a sharp sell-off in government bonds and placing significant pressure on GBP/USD quotes.
Local Election Results in UK
Source: Bloomberg.
The ruling party suffered a decisive defeat, losing the local elections to Reform UK. Since political defeats in the UK tend to be personalized, Keir Starmer has become the scapegoat. In reality, however, the blame lies with the Labour Party, which failed to deliver on its campaign promises. They failed to boost the economy and were forced to raise taxes.
As a result, Manchester Mayor Andy Burnham, who has a net positive political rating, could take the prime minister's seat. His platform, which includes halving income tax rates and increasing borrowing to fund defense spending, is forcing bondholders to demand a higher risk premium. It is widely believed in the market that only yields of 5.3% on 10-year bonds and 6% on 30-year bonds will attract non-residents.
Such a scenario would likely require a prolonged sell-off. Moreover, the political crisis in the UK has emerged at a particularly unfavorable moment. The conflict in the Middle East has intensified fears of accelerating inflation and significantly tighter monetary policy. Investors are increasingly concerned that consumer price growth could climb to 5%, potentially forcing the Bank of England to raise the repo rate three times in 2026.
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